Become rich in five Years
Messiah of people who want to make money. Why stay poor
What is 5 years? Only 1725 days. Imagine your last 1725 Days, how fast they have passed. In the next five years if you save and invest properly what you have saved, you can have financial freedom, secured future and a better quality of life.
CHAPTER 1--- SAVINGS
1A. SAVE AND INVEST
1B. PIGGY BANK APPROACH
1C. Stop spending and staying poor
1E. Saving is an umbrella when it rains on your head.
1F. HOW YOUR MONEY WILL MAKE MONEY FOR YOU
1G. How and where to spend
1H. CHANGE YOUR THINKING: Think SAVING, NOT spending!
1I. GET RID OF YOUR DEBTS AND FREEDOM TO LIVE
1J. CREDIT CARD DEBT
1K. Taxes and savings in 401 and IRA plans.
CHAPTER 2 ---ADVANTAGES OF INVESTING IN REAL ESTATE.
2a. REAL ESTATE IS THE BIGGEST MONEY MAKING MACHINE.
2b. INVEST IN YOUR OWN HOME
2C. WHY TO BUY YOUR OWN HOUSE OR COMMERCIAL PROPERTY INSTEAD OF LEASING IT.
2D. BUILDING EQUITY.
2E. Why prices of real estate go up and effects of inflation.
2F. TAX ADVANTAGES OF BUYING A HOUSE.
2g. Asset Growth
Chapter 3---FINANCING of real estate
3A. CREDIT SCORE
3B. FINDING MONEY FOR YOUR HOME.
3BB. Creative financing.
3C. MAKE MONEY WITH OTHER PEOPLE MONEY.
3D. MORTGAGES AND INTEREST RATES.
3E. BUYING A HOUSE WITHOUT ANY DOWN PAYMENT.
3F. MISCELLANEOUS SOURCES FROM WHERE YOU CAN BORROW FOR YOUR INVESTMENTS.
3G. COST OF FINANCING.
CHAPTER 4--HOW TO BUY REAL ESTATE
4A. Watch where jobs are moving.
4B. HOW TO BUY A HOUSE.
4C. HOW MUCH YOU SHOULD SPEND ON YOUR HOUSE.
4C. WHAT KIND OF HOUSE YOU WANT.
4d. New house vs old house.
4e. How to renovate a house.
4f. Big city down town area.
4G. LEARNING VALUATION OF HOUSE OR ASSET.
4H. HOW TO FIND DISTRESSED PROPERTIES.
4i. Buying properties in auction
4j. BUYING BANK OWNED REAL ESTATE.
4k. TIMING AND LOCATION.
4L. Lease with an option to buy.
4M. FINISH YOUR HOME WORK FIRST.
4N. TIME TO MOVE AND MAKE OFFER.
CHAPTER 6--------CASE STUDIES OF PEOPLE and questions answers.
Chapter 7------- FINDING A TENANT and leasing property
CHAPTER 8----- SALE AND Real Estate Exchange
CHAPTER 9------. How to become an Entrepreneur. Becoming rich in Retail and Service in business
9A. Financing your business
9B. Marketing plan for your business:
9C. Hiring and managing people:
9d. Strong buying skills.
9E. Planning and vision of business:
9F. Find a product or service which can be sold.
9g. Customer care and giving value to customer.
Chapter 10-- Investing in Stock Market.
CHAPTER 11--RECESSION AND BEAR MARKETS.
11A. BUBBLE BURST OF REAL ESTATE.
11B. RECESSION AND BLEEDING
11C. REGIONAL UPS AND DOWNS.
12--Interesting facts and conclusion.
About the author and the book: Lot of times, people ask me how I made my money or how did I start. Basically they want to know how they can also make money. This book is about sharing my knowledge with poor, middle class and rich people who want to become rich or make more money by investing but do not know how to do it. I have been a very successful investor for 40 years in my life. My experience in investments is worth millions of dollars.
A few years ago, an editor from Fortune Small Business Magazine came from New York to Florida and interviewed me and my young son Amit who was 21 at that time for three days. Then he decided to publish our story to show people how we invest in real estate and make money. You can paste this link below and read the article which will teach you how Ashok made money in commercial real estate.
I decided to write this book so that millions of people who are not financially independent and are staying poor all their lives they worked hard but at retirement their social security is not enough to pay rent bills forget about their other living expenses. This book is written with a purpose to help the real hardworking poor or middle class people who are struggling to maintain or increase their standard of living.There is no quick rich schemes or methods to make you rich overnight, but if you will save slow and steady and invest it right then you will become rich .
Lot of people at their young age saved enough money to put a down payment and bought their own home and kept on putting little bit money in their pension retirement funds when they were young. Within fifteen years their houses or condominiums were free and clear and they had a roof on their head where they did not have to pay any rent for living. After fifteen years now they have enough cash to enjoy or invest.They can support their families better and give good education to their kids. They also have accumulated enough money in their retirement funds so that they can retire comfortably.
Savings and investments should start when you are young, right from your first pay cheque.
Now, if you are ready, let us walk on this journey together. I want to take you to a better richer and nicer place, where you will feel financially secure and lead a happier life when you retire. In our journey and traveling times, there will be some rough rides and periods. We have to travel long distance. Mind you, we are moving from a poor place to a rich place. From a rented place to your own house rather a palace. As your own house is your palace. Instead of travelling by buses you will travell in your own car. Instead of worrying for your next pay cheque having enough money in your account that you don't have to worry for your pay cheque. at all.
As a kid in India, one time I remember how Europeans used to come to India to climb Himalayas the highest peaks in the world. A lot of them ran out of food or oxygen while they were climbing. A big storm came and they had to camp at a lower peak for a longer time. They lived without food or basic necessities of life sometime for many days. But did they leave their effort of climbing up? The answer is NO. Whatever peak they could reach, they enjoyed it as it was an achievement and experience. Lot of them came back again and again and made an effort to reach the highest peak and some of them finally succeeded. Some of them also quit before reaching few small peaks but at least they tried. Very few also died due to different reasons or when the weather became tough.That did not stop other people to quit climbing.
My journey to make you a rich man, or at least financially independent is not as difficult as climbing the high mountains. Although there will be some effort required from you to initially save some money, and at the end, there is a possibility that some of you will become so rich and will have so much money--- that even if you burn it, you will still be rich. Some of you may not become very rich but will have at least a roof on your head at the time of retirement and will have money to pay your day to day expenses when you won't be able to work.You may be able to take a vacation now and then and visit your love ones.
Very few might become very rich and then lose everything and go bankrupt it happens sometimes because they over extended and did not invested in the right stock or over paid for non producing real estate when prices were inflated and when the bubble busted they lost everything.
How to start: Now, if you are ready to become rich, I will request you to pick up a pencil and start reading the book. It would be helpful to underline things, because you may need or like to read some chapters again and again. Once you have finished reading it, start writing what you liked best. Make your own game plan.
Learn and educate yourself how to save and invest: Please read this book again and again, it will teach you how to save and invest. It will be a starting point. It may not teach you everything but for sure you will gain lot more then what you have spent in buying this book.
Lot of people lack financial education. In school they were never taught how to save and invest. People also don't know how to leverage, borrow and make money with other people and banks money. My heart bleeds when poor cannot get out of their poverty and rich have no real money except debts. By keeping this in mind I have written this book to educate basics of business and savings to people.
Most of these people don't know any honest and good investment advisers. Most of investment firms have some untrained brokers who are just looking for their profits. Some good experienced investment advisers are rare to find and are very expensive. Most of people cannot afford them or will not go to get advise and will invest without learning basics of investments. If you don't have financial background it is important to understand the ABC’s of investments before investing any of your hard earned money. One can learn a lot by going on internet, local libraries, universities book stores by reading how and where smart people are investing and managing their finances. They can also learn from the people who are successful and ask them how they became rich.
There are two kind of people rich and educated and poor and unskilled .
Rich and educated : There are some very successful people who had an opportunity to get good education or establish good businesses. These people are making good money, have good professions, businesses or jobs. When they started making good money and initially have good credit, banks will lend them all kind of money. Once they are young they have bought expensive houses,cars,furniture etc, they are all bought on credit. Over a period of time these people load themselves with debts. They owe money on credit cards, which they have used to live lavishly. They owe mortgages on their houses, loans on their cars, household effects, student loans and all other kind of loans. They have borrowed all kind of money from every source. They own houses, cars,furnishings,jewelery but in reality they own nothing. They have borrowed all kind of money to buy these things. Bank owns all these things as they have borrowed money to buy these things. They borrowed money on their credit cards to go for expensive vacations. They look rich and are living rich life but in reality they are poor as they owe lot more money then what they have. In future because they owe so much that they are working overtime for bank to pay interest as well as the money they had borrowed in the past. Most of these people do not understand that they should first saved money when they had good business or jobs. and not borrow for non productive assets which don't produce any income. Instead of being in debt by changing their spending habits and living in their means they should learn to save and invest so that they can become rich in five years, have a financial independence a debt free better worry free life.
On the other hand some people who are educated and have good business they saved their money while they were making good money and invested their saved money and now their investments are making money for them.
Poor and unskilled: Unfortunately then there are other people who never had an opportunity to have good eduction or any kind of trade or business either because their parents were very poor so they had to work to support themselves or they wasted their youth by not going to school without learning any thing so now they are doing low paying jobs . These people are working in warehouses,restaurants,retail and other low paying jobs, basically with little or no skills. They started when they were young and have been working hard since then, now they are old but don't have a dollar in their pockets. Not only that these people don't make enough money but they don't save small amounts of money which eventually they could have used to buy their own house or start their own business. Most of these people have the same pattern of habits, they just do not understand concept of saving, borrowing and investing. This book will teach them how to save money, by changing their spending habits and investing they can also have financial independence and live a better life.
Difference between this and other books :Lot of books in the market will teach you how to buy real estate, hire a broker, find mortgage, leverage, and so on. These things are necessary to learn. Most of these things, people know, but they still don't do it either because they have not learnt how to save and invest with little savings initially. As by filling one by one drop you can fill a bucket in no time,same is about savings by just saving $10 a day you can become rich.
What is different in this book from others is that I have written case studies of lot of people in chapter 8. In these studies, different people are shown and also shown how people became rich or stayed poor all their lives. There are stories of rags to riches and vice verse. Very few stories of riches to rags , because very few people loose money once they become rich. Most of rich people are rich because they know how to save and invest right. A common man does not know power of saving and investing will benefit from this book. After you will read life experiences of some people and how they became rich, you will start relating yourself with some of them. You will be able to see what they did right how they became rich ,and what they did wrong that they stayed poor all their lives.
DON’T RUSH. TAKE YOUR TIME: Please take a few days to read the book, as it is a lot of knowledge. Instead of writing it as a textbook, some places it has been written in the shape of stories to make it interesting or at least less boring.
1A) SAVE AND INVEST.
This book is all about saving money and investing it right. It is very simple and easy. Save now and invest while you are still young and have energy to do it. It is like growing seeds. Grow seeds now when you are young and when you will become old trees will become big over a period of time and will give you thousands of fruits to enjoy. Over a period of times real estate becomes more expensive. If you have your grandfather he will tell you some stories how much properties have appreciated in his life span. Learn how to grow the seed of investment with little money so that you can reap millions later on. Stop spending and staying poor. Save and put your money to work
1B)PIGGY BANK APPROACH
The most important thing is to develop the willpower to save. Some parents teach their children the importance of saving money right from the beginning--- they buy them piggy banks. Is basically a small box shaped like a pig that has a slot on the top in which they can put the change that their parents give them. This is a beautiful habit of teaching kids how to save. A lot of parents give a few dollars to their kids on special occasions like Christmas and birthdays and tell them to put it in the piggy bank. Kids love to do it. It is their bank. Sometimes parents will open their children’s piggy banks and count all their money to see how much they have. After a few days and months, they open it up again and count the money and it shows that the money has grown because they saved. Won’t it be nice if we all had those piggy banks and were shown to put a few pennies and quarters everyday and how they become $100 of savings in no time?
Kids are given the temptation that if they had saved up their money, then, with their savings, they would be able to buy a toy or whatever they wanted to buy with it.
NOW, as adults, I want YOU to buy a PIGGY BANK and start putting your money into it, which you would have spent otherwise.
Don’t buy a full pack of cigarettes, besides, smoking is not good for your health. Instead, if you really want to smoke, you ask your co-worker if he could give you one cigarette and give him the excuse that you are quitting smoking and eventually, you will quit smoking if you don’t buy cigarettes and you are ashamed of begging for it every day. That’s money you will be saving.
Don’t go to fast food places like McDonald’s and spend $5 there. Drink free coffee from the office coffee maker. Eat a heavy breakfast at home in order to save that extra $5 in your piggy bank.
There is a complete list of expenses you will learn in the next chapters from which you will save in order to put money in your piggy bank.
You will be surprised that at the end of the week, you were able to save anywhere from |$30 to $300 in that piggy bank. Your piggy will start becoming fatter and fatter as you feed it more and more.
Now, open a savings account at a bank with your piggy bank savings. Most banks offer free accounts with high yield interest rates. Write down every week what you saved. Make your savings bigger and bigger.
Now, once the money goes into your savings account, you won’t see it, so you won’t touch it easily. Make it sure that Piggy is well-fed every week, so that it becomes pretty fat at the end of the week. Instead of spending a little bit of money on yourself every day, you are making Piggy fatter. THE TRICK IS, don’t go out and spend your money, stay at home and save it.
You were close to spending $20 outside on lunch and dinner, sometimes with liquor. Now, if you like wine or beer, just buy them at the store, as they would cost a lot less than at the bar. Cook a nice dinner for yourself and have wine or beer with it. You will also notice that you have had a much better dinner and you would have enough leftovers for the next day’s lunch. Your piggy will be happy because you fed it the $10 that you saved.
You will also notice that you are not going 15 miles out of your way to some fancy restaurant and you saved about $7 on gas money. Your piggy would be happy because you gave him that money.
Generally on a Monday night, you will spend $5 on lottery tickets because you want to be a millionaire and not realize that you won’t because the odds of winning the lottery are the same as the odds of lightning striking a submarine underwater. This is one bad habit that poor people have, and one of the biggest reasons why they are never able to save money.
Every Tuesday, Jim has a habit of either going to the movies or going to the bar with his friends. Now, a new movie costs $10 plus soda and popcorn for $3 plus the dinner after the movie for $15. This week, bill decided to stay home save that $28 and watch American Idol on TV.
On Wednesday and Thursday, Jim also has a habit of spending money at the pool halls, bowling alleys, race tracks, and bars. Jim changed his habits. Bill will go out with his friends who will go out and play tennis and some indoor games like cards or poker with chips and so on.
Bill, instead of spending money on fishing boat trips, will go fishing on other people’s boats and do fishing for free. Instead of paying money on golf and paying by his credit cards, got focused on how to pay back his credit card debt first, which was piling up on him, and also how to find a good place for himself to live which he can call his own instead of paying rent. Instead of spending time at the bars, restaurants, golf courses, and gambling, Jim started spending time with real estate agents and mortgage brokers.
Bill also noticed that in the beginning it was okay, but then some weeks later he will forget to feed Piggy. He did feel bad when he did not feed Piggy.
PROMISE YOUR PIGGY: Now, one thing I will like you to do is promise that you will always feed her something every day. Your piggy can die if you don’t feed her. However, when bill found out that he can definitely save $150 a week by changing his habits and making sure that his piggy gets fed too. Whenever he will go to the bank to cash his check he will take out $150 and deposit it in his savings.
1C)STOP SPENDING AND STAYING POOR
There are two kinds of people. People who are really rich and then there are people who are not rich but they pretend to be rich.
A rich person may not be dressed up the best. He may not be driving an expensive car. He may be eating at value-priced restaurants or just cooking at home.
However, a person pretending to be rich, drives new expensive cars leased at big amounts spends 25% or more of their paycheck, dines at fancy restaurants and pays the bills with credit cards. Most of these people are not rich, but they are in debt and if they lose their jobs, they will have to declare bankruptcy to pay their debts.
When the big real estate bubbles burst in the year 2007, a lot of people had bought million dollar homes, and were able to get 100% financing without any down payment plus also had taken a home equity loan of $150,000 to buy furniture. They also leased a BMW car which had a lease payment of $1200 a month. When interest rates started going up he had no money to pay the mortgage interest on the home and lease payment on the car. Their children were going to private schools and they could not afford to pay. He was behind for the alimony payments to his ex-wife; she threatened to have him thrown in jail. The credit card debt mounted up to $100,000. The final result was bankruptcy. Half of them, their wives had to leave them and most of them, they lost their jobs because either because of the recession or because of the lack of attention to their jobs.
These kinds of people who pretend to be rich are broke financially and mentally, because they are irresponsible. You will stay poor if you have a habit of spending and borrowing for things which depreciate and do not bring any return.
Watch every dollar you spend. There is a saying that a bucket will fill up with just one drop of water. It is the same then you start taking water out of the bucket one drop at a time, it will become empty. By spending one dollar here and five dollars there, you will never be able to save money. Spending money on things like eating out, cigarettes, soda, coffee, lotto tickets, and entertaining friends who will not spend any money on you in return, will keep you broke.
1D)ADVICE TO YOUNG PEOPLE:
If you are making good money and have a decent job, then don’t buy an expensive car or buy or rent a big house, expensive furniture, watches, and clothing. Don’t spend lavishly on expensive vacations and parties. Save only $15 to $25 per paycheck and I will show you how you will become a millionaire in 20 years.
You can make big paychecks, but you are never going to be rich. You can only be rich if you invest your money right and let your money work for you and let your money make money for you.
We all humans have a nature of spending. Particularly America is a country where people will borrow money and keep on spending until the time they cannot get credit anymore.
Learn to invest at very young age, you have to learn to save so that you can invest and start a small business . Make a daily list of items that you spend money on, and then you are going to see where and how you can save. You will reduce those expenses. It is exactly like if you are eating too much outside. You can cut down on eating outside and spending up to six times more for one meal then what you can cook at home.
According to the American Consumer Bureau, Americans, on an average, save only 4% gross of the money they make. Now, when we say 4% gross of the money, it is not every American who saves. Some Americans might be saving nothing, but when we average it out, we can say Americans save 4% of their gross. I will say majority of the young fresh college graduates or high school students don't save at all, but rather, they are either spending their parents' hard earned money which they give them to keep them happy or whatever reasons are. You go to any mall or restaurant or bar, and they are full of young children and adults. The only shops that are thriving in the recession are the ones which are dealing with young children and adults. As the young adults who are either not working of if they are working, they are making $7 or below an hour. Some of them are also renting their own apartments. Most of them have credit cards. They have stopped getting higher education because they cannot afford to do that, as they have too many bills to pay. Malls are full of junior wear fashion clothing, electronic stores, phone stalls, jewelry, fast food, and other restaurants which basically cater to these young kids. Even car dealers and electronic stores like Best Buy and Circuit City are full of these young kids who are buying either small stuff or big stuff on credit.
Do these kids have more spending power than adults who are in their late thirties an over? No, they do not have more spending power than them. Then how come these kids can spend more? The answer is easy. First of all, these kids have no savings at all. They owe money on their credit cards and they have leased their cars for which they are making monthly payments. They are making monthly payments on their insurance also, so they are living hand to mouth. Whenever these kids run short of money, they run to their parents. Parents also give them money either because they love them or they think that it is their obligation to help their kids in meeting their spending habits. Now most of these parents also who are in their prime have not got any money. Parents are in their prime and both husband and wife have been working and are a middle class family who are also working hand to mouth. Some of them have 3 or 4 months of savings in case some emergency happens. Most of these parents also do not think it is necessary to save.
Young students and adults should be given a credit course, where they should be taught how to save and invest. Young adults should not be allowed to have credit cards until the time they can prove that they can earn and save to pay off the credit card and the borrowed money back. If people will learn how to save, it will eventually be a stronger economy and not a bubble economy. Look at china, which was a poor country many years ago. Now, they are lending us the money. We have a trade deficit in billions of dollars with China. We are printing notes and borrowing. It had never happened in the history of the USA that our currency has lost so much value against all the currencies of the world.
Young adults, instead of putting them in debt when they come out of college, we should teach them how to work hard, save and then own their houses, which will not be loaded with debts, but a free American life.
1E) Savings is an umbrella when it rains.
Have you heard the saying that banks will lend you money when you don't need it and then won't give you anything when you need money the most? Banks are also famous for giving you an umbrella on a sunny day and then they take it away when it is raining. But if you have your own savings then you can use your umbrella when it rains, as your savings are your umbrella in the hot sun as well as when it is raining.
Save for your hard times. If you lose your job or your spouse dies or your kid has an accident or you are in a business which is of a cyclical nature which goes down or if you get into a lawsuit and you lose, then you need a cushion for at least 6 months that will give you a chance to adjust with new circumstances. You don't need to keep this money in cash. You can keep one month of your emergency funds in a money market accounts and the rest in stocks or bonds which are cash able right away.
If you have saved a lot of money and want to tie it up for a short period of time, then you can also lend the money in first and second mortgages on houses and commercial property which have a lot better interest returns
1F)HOW YOUR MONEY WILL MAKE MONEY FOR YOU
First of all you need to learn how to save. There are 7 days in a week when you can earn and save. SAVINGS has 7 letters. First day of the week, write down the first letter of the word SAVINGS, which is an “S”, and also write down how much you saved that day. For example, you want to go out to dinner that night and you like to have beer or wine with your dinner. You go home instead and cook you a nice dinner, listen to music, and have 2 beers, which would normally cost a lot more at the bar. Generally when you cook for yourself, you end up cooking more and then you have leftovers for the next 3 meals. You can even freeze it and reheat it again after a few days. In most of the fast food restaurants, the cost of raw food is only 25%. You will save 75% on food when you cook and eat at home. You eat healthier with less fat, salt, and chemicals (MSG) which they use in the restaurant to preserve the food.
I have met millionaires that eat at home because they like to save and want to eat much better quality food. I have also seen people who make $8 an hour spending $25 at McDonald’s for breakfast, lunch, and dinner. They could have eaten better and saved $15 at least just on food if they cooked at home. Spending 3 hours of your weekly paycheck on junk food after paying Uncle Sam does not justify anything when you are not rich.
Develop a habit of saving by compulsion.Take a box. Put a slot on it so you can put money in it. Put a lock on it and hide the key. Now, force yourself to put 15% of your earnings in that box when you get your paycheck.
Once you start putting 15% of your money in that box, you will have two choices: either you will start working harder for more hours or you will start finding the ways how to save and spend carefully.
HOW AND WHERE TO SPEND
Now that you have saved some money, the next trick is how to invest it right. As I mentioned before, you can make good money but you will never become rich if you don’t know how to invest it right. So investing right is the main thing so your money can work for you and your money is making money for you.
One of the safest investments is in real estate. If you invest it right, you could hardly go wrong in it. I will show you in detail in the next chapter how to invest in the real estate market.
CHANGE YOUR THINKING: Think SAVING, NOT spending!
A lot of people think that they are not making enough money and they are only making money to pay their day to day bills. Which is not entirely true? The fact is that it is not about how much money you make, but how much money you spend will determine how much money you will be able to save. You will become rich if you will save. The trick is saving and investing it right over and over.
Our economy is made of spending. The government, banks, advertisers, everybody encourages us to spend. That is how the economy runs. Americans are known all over the world for spending. My children, when they got out of their schools, so many credit card companies sent then credit card offers, thinking that if they cannot pay their parents, they might pay to save their credits.
Everybody teaches you how to spend and not how to save. When you try to tell children not to spend, they thing you are from OLD SCHOOL. We have to live only once. First, make money, save it, invest, and then spend. You cannot spend money by borrowing money when you cannot afford to pay.
Look at our nation as a whole. The US government has borrowed so much money that close to ¼ of their budget will be spent on interest payments only. We are sitting on a time bomb which will explode sooner or later.
I know a lot of young kids who have 2 cars and motorcycles all on lease. Before the paycheck even comes, it goes straight to all these lease payments. Why did you buy a new car when I am making 10 times more than you and I cannot afford one and you are making an average salary and you bought a gas guzzler? How do you think you can justify these expenses? You have maxed out your credit card limit at well, you are 6 payments behind on alimony and child support to your ex-wife, and you spend $20 on fast food and cigarettes--- how will you make it?
People don’t have a straight answer to these questions and they don’t even think to forget about spending or at least think that saving money is necessary to survive.
Please get out of it when you spend more than what you make. You will eventually lose everything: your house, your car, your wife, your kids, the dog, and your basic necessities in life. You will always be stressed out that your spouse might leave you and you will be considered a failure in society because you lost everything. How did this all happen? This all happened because nobody showed you that it is bad to spend more than what you make. Even if you do not make the big money, it is easy to save if you do not spend on items where you can avoid spending. For example, the best food can be eaten for $10 at home or up to $100 at a restaurant. Car payments can be only $250 a month to $2000 a month. Spend only what you can afford after putting your 15% savings in the locked box or your savings account.
I just finished reading the book “Three Cups of Tea,” written by Greg Mottelson. What a book! Greg saved every penny he had and opened schools for thousands of kids in the most dangerous areas of the world where you will not like to go for an hour. He would not have been successful in his life as one of the biggest peacemakers in the world if he did not have the habit of saving and spending lavishly.
If you save and invest $300 a month and make 10% annual return on your money, in 40 years this is what your money will become:
$150 a month - $5 a day = $940,000
$300 a month - $10 a day = $180,000
$600 a month - $20 a day = $3,000,000
You can retire rich just by small savings.
Imagine if you are young and making only $10 an hour. You can still retire as a millionaire if you put aside one hour of your work in Piggy and let the money multiply for you.
JUST DISCIPLINE YOURSELF!
Start saving. For 1725 days, do not spend where you don't have to spend. You will feel financially secured all your life. It is a magic once you develop these habits you will keep them all your life. You will be able to write your story from rags to riches, just be following things which you will be reading in this book. You just have to love money! Don't let it go if you have made it! Save it! Financial freedom will only come if you will learn not to overspend it but save it. Open your savings account today and when you go to cash your paycheck, put 10% to 25% of that check in your savings account. Ask yourself, when you had some extra money in your bank or pocket, did it hurt you? The answer will be NEVER. That was the happiest moment you had. Ask yourself, will you go wrong if you have money as savings in your bank account, with which you are going to buy a house and a permanent roof on your head. This house will be yours where you and your loved ones will grow and enjoy the beautiful flowers and trees, barbecue, and a room where you will all sit down and pray and sing and eat together. A house if at all you get sick, your loved ones will care for you. Your house will be the roof on your head. The nest where you will rest and enjoy and you will spend golden days of your old age in it and when you leave this world you will give it to your loved ones and they will say, my parents gave it to me. So, please plan. Start saving that little money I have asked you to save. Do not spend unnecessarily on things where you can avoid spending. At least plan. Do not borrow and spend money!
Get rid of your debts to have Freedom and time to live
The American Dream is work, work, and work. Husband works 7 days, wife works, children work. It is not true that we are working all the time because we have to pay our bills. I have seen only 10% of the people really retire with their savings. Now, the government is saying that the way our national debt is going, we will not be left with any money in our social security system. Why is it like this? It's because we are spending more than what me are making. We are not saving. We are not letting our money work for us, but we are working for the money.
We all talk about our debts on TV, newspapers and all over. Why cannot we teach people how to save? Why can't the government put limits on borrowings? In the late '80s, savings and loan banks failed and millions of people and the government lost billions because over credit was given to people. We repeated the same mistake from 1998 to 2008 when the interest rates were low and people were given all kinds of money to buy homes which they could not afford and after that, the same things--- banks failing, people going bankrupt, and then the government giving billions to bail them out. More deficits and giving free checks to the people so that they can spend and boost the economy. Why can't the government come out with the policy that people should save money and that saved money will again bring prosperity to everyone?
Our aim of work should not be just to work and spend more. Our aim should be to work and save, save, save, so that saved money can work for us.
Work, work and work. You are working for money all the time. Why should you work for money? The SMART PART is to learn how to put your money to work for you. And when money will work for you, you will become richer.
You have learned the first three techniques.
First, is NOT spending if you don't have money to spend.
If you cannot afford to pay cash for a car because you don’t have the money, but you have only half the money, then maybe buy a car which is 2 years old and has very low mileage and you can buy it at 40% of the value of a new car. Don’t start leasing and spending money if you don’t have other assets which are bringing you income.
Secondly, you are never going to use credit cards. If you have any, you will NOT use them! You can buy a few things on credit cards if you don't get any discounts, but pay them before the deadline. This will help you in building your credit.
Thirdly, SAVINGS! Save at least 10% to 25 % of your paycheck every week. If you can save more, then SAVE IT! For example, some people get their tax refunds or bonuses at the end of the year. SAVE IT! Sometimes some family member dies and leaves you a small inheritance. SAVE IT! You won a small lotto or jackpot. SAVE IT! You won some lawsuit either by book, crook, or chance, man, save that money, whatever you got out of it.
Invest your savings in short term CD's while you are looking to buy good investments.You can go on the internet or some financial magazines or newspaper to find out what kind of interest rates market funds are paying or charging if we have to borrow or invest money. Some local community banks always have a better rate to offer and put your money to work whosoever is offering you better interest rates.
Save in 401k
Next best investment is a 401K. Ask your boss if he has it and invest in it. This is a tax-deferred savings account. A small amount of money will make millions, like a small drop of water in a bucket fills the bucket.
To save, we need to plan and see what our biggest expenses are and how we can save on those expenses so we can be rich.
We did talk about our savings on small things, but not understanding some of our big expenses and how we can save on them.
Do you know that the government is the biggest expense of every individual as well as businesses? The federal, state, and local government takes away 25% to 70% of your income in shape of taxes. There is no other expense on which even poor Americans spend more than what they make. The government takes it away from them--- income tax, social security tax, state tax, house tax, sales tax--- the government taxes EVERYTHING.
Every employer is supposed to deduct these taxes at the source which means that it is the employer's responsibility to take your taxes out and send it to the government. People who are self-employed, they have to guess and send advance taxes every quarter to the government, and if they are not sent in time, they are charged heavy penalties. Small businesses collect sales tax and send it to the government every month before the 20th of the next month. If it is not remitted right then and there, they charge you a very severe penalty. Individuals and businesses during tax time find that they are broke again, because most what they made; the government took away in taxes. The government takes away taxes ever month so you should also develop a habit of when you cash your check to put a small amount of money in your piggy bank or savings account.
Whether you worked hard for 7 days a week or saved your money or not does not matter to the government, you always have to pay taxes first. However, there is a bright spot in all the government taxes. The US government does give incentives and tax breaks to individuals who want to save and invest. These incentives are not as good as the ones the Japanese or Germans give, but they are still better than nothing.
The amount of money which I helped you in saving was close to $1,000 a month, now that money which an average middle class family can easily save, by putting restraints on their spending. This can be saved just by changing habits. One thousand a month, we are going to put in a pre-tax retirement account. A pre-tax retirement account savings of $1,000 per month actually reduces your spendable income only by $650 a month, because the rest is your income tax savings. You can put up to $1,000 every year in a 401K retirement plan. This is a tax-deferred investment. You don't pay any income taxes on what you put in your 401K. You also don't pay any taxes on the income you make on your 401K savings.
Some companies also contribute amounts equal to whatever an employee put in the 401K plan. So if you put $10,000 a year in your 401K, your employer matches the same amount. You will have $20,000 in your 401K savings account, but basically, you have invested only $650 of your money, the rest was all taxes which you would have ended up paying. Any profits also made on this 401K until retirement that you don't withdraw early are also tax free. You can also direct your employer to deduct this money and invest in a 401K plan every week, that way, you can get the benefit of earning compound interest. These self-directed retirement savings accounts are also called 401K plans.
Imagine an $8400 in this 401K plan can be $20,000 at the end of the year. If you invest regularly instead of paying the government 35% taxes, you will be able to accumulate a lot of money by the time you retire. Once you set up this plan, the rest will move automatically, because you will love to save and you will also learn how to manage your funds. Start deducting maybe 5% of your gross paycheck. It is only close to 3.25% less on your total gross pay because the balance you will end up paying in taxes if you don't put in your retirement savings accounts. Uncle Sam will take away this money anyway. So every thousand you are saving in your 401K plan is only costing you $700. There is a balance of $300 that you give to Uncle Sam, which you will never see back so you have a saving of $300. Now, if your employer also matches your 401K plan, then your savings double.
A lot of people don't invest in a 401K plan. As a matter of fact, one in every 4 Americans who had an opportunity to invest in a 401K has not invested in it. A lot of times, even if the companies match retirement contributions, people still don't invest in it. People think that if they invert themselves, they can make more money. A lot of people don't have the habit of savings. They don't want to leave money too long in 401K plans, but they all forget that by investing in 401K the very first year, their savings increase by 35% of the amount of taxes they have saved. Plus, if their employer contributes, then they have kind of doubled their money. Any income produced on 401K is not tenable either, otherwise any other money they make, and they have to pay 35% tax.
I had seen a couple who were putting 5% of their savings in 401K, and another couple who were putting 20% of their savings in 401K, both the couples were making the same kind of money. As a matter of fact, the couple who were putting 5% was making more money and had fewer liabilities than the other couple. The couple who were putting 20% was saving a lot on taxes and at the end had enough money to live a good retirement life when they retired from their jobs. The person who was putting in only 5% had only $750,000, barely enough to retire on.
Money just makes money when you save some. Money will work for you when you retire and cannot and do not want to work. You can also put money in a self-directed 401K plan, and when the market goes down, you can buy stocks and make more than 10% in returns. It is your tax-free money to play.
Another principle and beauty of the 401K plan is that it is basically a long-term investment and it gives you compounded interests. Look at Berkshire Hathaway, the smartest and richest investor in the world, he bought stocks and let them stay forever and all the returns he got out of these stocks, he kept investing it back and the compounded income and interest made him a multimillionaire. Remember, $1,000 a month invested at 10% compounded will become $200,000 in 30 years.
Don't waste time and forget what you have learned up to now!
Check with your company if they offer a retirement plan. If they don't, it won't take you more than 2 hours of your time to open one somewhere else. Once this account is opened then the only thing you have to do is deposit money into it.
Also, open an IRA, account which is also a tax-deferred account. Anything tax deferred makes sense, because it will cost 35% of your savings if you don't put money into these retirement accounts. Mutual funds are very popular for IRA investments. If you are lucky and your mutual fund grows, then you will have a lot of money saved at retirement. If you are going to invest in mutual funds then I recommend that you should pick up a broker and study a little bit about mutual funds and then invest. You can basically open an IRA account in 2 hours. But if you spend a little bit of extra time and study about where your mutual fund is really going then you can make a lot more returns. Imagine return of 15% will bring you 3 times more profit and saving than a return of 5%, so it is important that you spend a little bit of time to study. The whole idea is to have your money working for you and not you working for your money.
Nowadays on the internet, you can go and search for IRAs. You will get a lot of information. You can start your account as low as $100 or $200 depending on what your plans are. Contact online traders like eTrade, AmeriTrade, or TD Waterhouse, or brokers like Charles Schwab, Merril Lynch, Morgan Stanley, or some other broker who is strong and popular in your area. You can also contact your bank and see what kind of accounts they can open for you.
Make it sure that you invest regularly and maybe send this payment directly from your paycheck. A lot of banks where you will deposit can also take your money out maybe once a month and send directly to this IRA account.
If you are self-employed, you can set up a SEP IRA account. The best thing is that at the end of the year, when your accountant tells you what you have made, you can invest up to 25% if your income up to $40,000 in a SEP IRA account. This money, once taken out, is safe saving and even if your business goes down or up, you can have a good retirement. Imagine if you made $50,000, you can put close to half of it into retirement plans which will save you close to $6,000 in taxes--- you save 30% the very first year.
My recommendation will be to immediately open an account and make it sure that you put the money in before your year-end deadline so that you can have the tax benefits. Once you start investing more and more go to different companies which set up your IRA accounts to study where you should put the money in stocks, bonds, or cash, depending on the amount of risk you want to take in those kinds of portfolios. If you want to take more risk because you have lots of other money, then you can go into more aggressive growth stocks. You can either double your money or lose it. A more conservative approach will be to invest in growth and income stocks when you think you are in the bull market. If you are old and want to be conservative and do not want to take too much risk at all, then keep more money in cash, then in bonds, and some in growth and income mutual funds.
CHAPTER 2---INVESTING IN REAL ESTATE
2A)INVEST IN YOUR OWN HOME
The first most important investment is buying your own home. Don’t live in rental properties. In my whole life, I have never rented a place to live. When you are living in your own home, you will always feel more secure.
Think of it as if you are renting. Instead of paying rent now you are paying a mortgage. Sometimes, mortgage payments can be more than what you would normally pay as rental. But then again, when you are paying interest and mortgage, you are also paying capital back, which is like savings.Plus rents go up every year but your mortgage payments will stay the same so in few years you will be paying less then rental payments.
Remember, the first most important thing is that you have to have a roof over your head which belongs to you. What it means is that you have to buy your own home as soon as possible or you will never be able to buy a new house as prices of the houses will go so high that it will be difficult to buy a house. If you have a habit of spending money on small things, you will never be able to save money to put a down payment on your home and buy your own home. Any couple who develops a habit of not spending on small things should be able to put a down payment for their house and will be financially secure in 5 to 10 years, if not rich.
I know a lot of people who have bought homes in New York, Los Angeles, or other big cities. After 20 years, they sold their homes and moved to cheaper states like North Carolina or Florida and bought another home at 1/3 of the cost and lived with the profits which they made by selling their city house.
You can keep on paying rent or you can own the same house in 15 years and don't have to pay rent after 15 years, and all the mortgage interest that you paid actually was a rent you paid to yourself and after 15 years, your home becomes free and clear and whatever the value of that house is, that is your equity to keep.
2B) Real estate is the biggest money making machine, ever.
By investing in real estate you can have a continuous flow of rental incomes.
Return on your money year after year:If you buy a house for $60000.00 and you put a 10% down payment which is $6000.00 You borrowed $54000.00 amortized over 15 years at 6% interest which is equqal to $3200 per year a year it may cost you $1800taxes,$700 insurance,$900 maintaince and counting 5% vacancy $800 with a total expenses of $7400 per year. If you rent this house for $800 a month or $9600 a year it will give you a net reurn of $2200 per year on $6000 investment. This is close to 32% return on $6000 of down payment. As over a period of time rents will increase and if the etc money what is made every year is put back to pay off mortgage then property will be free and clear in 15 years.
2C)WHY TO BUY A HOUSE INSTEAD OF LEASING IT
First of all, the great feeling of owning a home is great, you can tell everybody, “this is my house, and I bought it.” You know that you not have to look for an apartment and move every year. You can paint it the way you want, you can furnish it the way you want. You can put a playground for your kids; you can grow roses, oranges, and other trees, depending on the weather in your city. You can grow big trees if you don't have them already in your yard. Your house becomes your memories. If you have children, maybe they will grow as adults in them. You dream of playing with your children in your backyard. Your memories of sitting with your wife on a swing when you were young will always stay, because this is your home where you stayed and spent most of the best times of your life. People who are thinking of starting their own business my advice is buy your property and open your business in your own real estate instead of renting it. This way you are paying rent to yourself. As your property value will go up so you will have a business rent free. What ever mortgage interest you have paid your value of property will go up by that much value. Like us buy distress commercial real estate, set up our own business in that and eventually your Real Estate will be worth fortune . If business is good you will have no problem in paying the interest to the bank. Basically your interest payment is just like paying rent to the landlord. If the business does not go well then you can sell the business and lease it out your building to someone else and even then you will make money. In our case whenever we found a good tenant for long term lease and we could make a very good positive cash flow from lease business we moved out of our building our business and leased the property to some one else. In few cases we also built our business and sold the business to other people but kept the building. Property values go up when you have good quality long term tenants with good paying rents.
When prices of real estate goes up then either you can sell and cash your profits when good opportunity comes in or you can also borrow against the equity of your property if you need money for yourself and still keep the building and future appreciation of building will be still yours and the money which you have borrowed against your building you can invest it in another good property. Or if you have not borrowed against your building you can live a comfortable life with the rental income once the rent goes up after few years and your mortgage owing balance goes down .
Most people believe that they have to start saving at a young age to become rich and have to have money to buy real estate , which is not entirely true. You can start at any age, and also can buy real estate without money or other people’s money. As I said, in 5 years, which is 1725 days, you can still become rich or at least become financially independent if you will start saving and investing right as explained in this book
After going two times back and forth, their offer was accepted for $1.210, 000. But the banks won't finance more than $800,000 and interest rates on commercial mortgages are always higher and the best rate they could get was 7%. But they only had $220,000 in the bank. They needed close to $210000 more to close the deal. They went to a broker who found them financing from a private lender who will lend them the money for a period of 5 years at 10% interest on a second mortgage. This rate was high but they could still pay all their bills and still had $20000 left in positive cash flow if the property stays all leased out and if they managed the shopping center themselves. They decided to go ahead and buy the shopping center. After only three years with their savings from the job and positive cash flow they were able to pay off the second mortgage.
2D) BUILDING EQUITY
When you own your own home, you build equity. You will make it sure that no matter what, your mortgage payments are made in time. You do not want to lose all of the beautiful memories that you have with this house. Banks and mortgage companies are not scared to lend money to you on your house. On houses sometimes, banks lend only up to 100% while on commercial properties, if they are income producing, banks lend up to 60%. Why banks lend so much money on personal houses is because they know people will not let their houses go for foreclosure. As a matter of fact, only 18 houses in 1,000 go for foreclosure. Most of these people are those who bought bigger houses, more than what they can afford. When you own a home, you automatically save. Whatever mortgage payment you are paying, consider most or half of it as savings. You are building equity.
2e)ROLE OF INFLATION AND DEMAND SUPPLY IN APPRECIATION OF REAL ESTATE I am sure you understand inflation. Inflation means prices-go-up. The cost of materials, labor, and land go up. So when these things go up, automatically, prices of houses go up.Real Estate prices in the long run always go up.Only thing that changes is the amount of change each year.During periods of inflation ,greater demand and short supplies they can have a double digit growth year after year and during recession and oversupply in some areas they go down for few years ,but in the long term real estate values have been always up.
If you purchased one house for $100,000 in real estate per year,with a rental income you can build equity of almost $400,000 in 10 years. This equity is built just with an inflation rate of only 5%. You can buy a $100000.00 with only $10000.00 down if you have good credit.So over a period of 10 yrs you only invested $100000 and before taking into consideration rental income it made you $400000.of equity.
Supply and demand interest rates and employment are the major factors that influence the price of real estate. When interest rates are high, the demand for homeownership goes down. Rents go up and rental occupancy rates increase. In contrast, when interest rates are low, homeownership demand typically increases, because more people can afford homes causing home prices to increase. Due to these factors real estate always increases in value, over the long term.
TAX ADVANTAGES OF BUYING A HOUSEYou defer your taxes by writing of depreciation against your income. You don't have to pay taxes on the appreciation of your house till the time you sell it. In a normal business you pay taxes same year when you make money but in real estate let us say your investment property has gone up in value every year you don't pay tex on that you will only pay tax when you will sell. Profits on real estate are capital gains and not normal income . Capital taxes are in most of cases less then half compared to reguler income taxes
Now, when you buy the house, you can deduct all your interest payments and taxes from your gross income. So let us say that if you are in the 25% tax bracket and your interest and taxes on the home are $12,000 a year, you will be getting $3,000 back from the government. So if you had to pay a little bit extra money because you bought the house instead of leasing it then this extra money will be good to pay your extra expenses on the mortgage. If you cannot afford these extra expenses, then try to get a small line of credit or a home equity loan on your home as you will already have built $30,000 of equity on your home so the bank will have no problem in giving you that credit limit on which you can draw whenever you are short. You are using this money for only your absolutely necessary expenses and not on things on which you don't have to spend. When people have credit lines, they know they can spend and cannot control it. That is why I don't encourage credit lines or credit cars unless they are absolutely necessary. Now remember first that you have to save and when your money is working for you and making money for you, then spend it.
2g )Assett Growth
1L)3A CREDIT SCORE AND Learning Financing of real Estate3G.
One of the most important things in getting credit is your credit score. If your credit score is good or high, it is easy to get financing. A credit score is basically your credit history. If you have a good credit score, banks will not be scared to lend you money. They will also give you the best rates possible. A high credit score means you are less of a credit risk to the bank, which means you have less chances of defaulting on your loan, and also that you have borrowed before and have paid in time. You can save up to 1.5% if your credit score is the best, which is between 760 to 800. If you have a history of bad loans then your score can go as low as 500 and no one will give you a loan no matter what interest rate you are willing to pay.
When you will apply for a loan, most of the companies will be able to pull your credit score by your social security number. Nowadays you can get your credit report free if you go online. If there are any mistakes on your credit report, then you must get it fixed.
Get advice from a good financial planner. A lot of times, you can get this advice for free. You can learn some facts by going to these planners however you may have to pay some money to learn more.
Go to all the free seminars about finance, how to become rich, and buy real estate.
Read all the books you can motivate you to save and invest .
By reviewing your financial situation, you can see what risks you can and cannot take.
3B)FINDING MONEY FOR YOUR HOUSE
My first advice to you is, before you ever start looking for a deal on a house, find money to use to finance the purchase. Go to different banks in the area and tell them that you are thinking about buying a house and you want them to prequalify you. Prequalifying for a mortgage means that you can determine how much you will be able to get from your financial institution to buy the house. You should go to different financial institutions. You can do most of this work by phone, fax, or on the internet. A lot of banks will give you bigger financing but then rates will go higher. Remember, the higher the interest rates are, the more your monthly payments will be. There are lots of books which will tell you that you can buy a home without any down payments. Sometimes, there are builders or individuals selling homes without any down payments, but their interest rates will be much higher. When you have high interest rates more than 8% then it is difficult to make money unless and until you stole the house at the time of purchase.
Under some government schemes like: if you are a first time house buyer, you can buy homes with only 5% down payment and the rest can be financed at a low interest rate. One of the best strategies is to lease the property for a period of 2 years or more and get an option to buy the property at a fixed price which will be determined at the time of buying. This is a very easy-to-write contract which I have written below. You also have a right to register this contract in the registrar's office, which becomes like a lien on the property and the landlord cannot sell the property until the time your expiry date or lease is finished. Once you lease a house with the option to buy it, you have the right to buy the house. In 2 years, it gives you 2 years of time to buy the house. In the meantime, you can save some money as a down payment as well as find financing.
It is important that you don't accept to buy a house that costs more than the market value of the house. You will have 2 years to buy and decide. If the value of properties goes up, then you will still be able to buy the house at a 2-year old price and all the profits will be there for you to keep. If, due to any reason, prices did not go up, then you can walk away from that deal or the owner may give you an additional 2 years to close on the same terms and conditions.
This is one of the best ways to buy a house, because you hardly need any money--- maybe 2 months' rent in advance, and if the value of the house does not go up, you can come out of it.
Now, you will like to know where to find this kind of seller and why that will seller agree to lease a house with those conditions. A lot of people, as well as developers speculate and buy and sell houses and sometimes make good money. When markets take a down turn like it has happened in the beginning of 2006 when interest rates started going up and the prices of houses started going down, then these people who had homes for speculation purposes could not sell them. Every month they still had to pay mortgage, taxes, insurance and maintenance on their houses. People started getting behind on their mortgage payments because they could not carry the house mortgage anymore. Now, they have 2 choices: either the banks foreclose them and screw up their credits or find someone who might lease them and at least pay back the interest and other expenses on these mortgages. If, after 3 years, they can sell the house at the price they bought it for, they will be also able to recover their down payments, which they had given to buy homes. So, it is a win-win situation for the seller and the person who has the option to buy it after 2 or 3 years. Now, the person who has the option to buy can buy this house anytime during his option-to-buy period. If the price of the home has gone up in 2 years by 20%, then the buyer may not have to come down with any down payment either, because appraisal of homes will be 20% more so the bank will be more than happy to finance the house at 100% of the value. The same principle applies with some contractors and builders who had built homes and cannot sell them. They will love to unload their houses, at least to pay their interest and expenses.
2bb)CREATIVE FINANCING: When purchasing real estate instead of traditional way of giving 10% to 40% of your money as down payment you buy a real estate without putting any of your own money it is called creative financing. For example if you take over the payment of existing mortgage on the property. It is possible to do these deal when vendor wants to really sell the property.Sometime vendor can take a colletral of your other property and lend you money for down payment if bank requires you to do that. There is always private money available at a higher rate from where down payment to the property can be obtained. When I had just started real estate I remember buying a commercial property for $140000 and bank won't lend more then $70000 at 7% on it as property was half empty but it still had a good positive cash flow. Seller agreed to carry second mortgage for $55000 at 12% for a period of 3 years so I was able to buy property with only $15000 down payment. I renovated the building in three months with a cost of $7000 and another bank gave me $280000 by the end of year when it was completly leased out,as it got appraised for $380000. I paid off first and second mortgages and used balance of money to buy three more properties. In few years I sold all of them and made $270000 profit because of creative financing.Most of the people who have made lot of money in real estate have become multimillionaires because of creative financing.
Lot of people are sitting in people ROTH IRA accounts at a very low interest rates and if you have a solid business proposition with colletrel you can borrow money against those IRA accounts.Monthly payments on to the lender in his Roth IRA tax free account.
Leveraging 3C)MAKE MONEY WITH OTHER PEOPLE'S MONEY)
On an average house, prices go up by 7% a year, but as I said, on an average, in a normal city or state where jobs are not disappearing, prices will go up by 7% a year. Now let us say you invested $100,000 to buy a house of $1,000,000. When you bought the house, other houses in the area were selling for $1,100,000 or more, but because the seller had to move out, as the husband's job got transferred so they decided to sell it fast, you negotiated and you were lucky to buy it for $100,000. After one year, prices of homes had a double digit price increase. Some houses in the neighborhood were listed for $140,000. Assuming that you can sell your house as a sale-by-owner for $125,000, you will be making $25,000 profit on your $10,000 down payment which is 250% profit in one year. This is also called leverage because you can leverage the real estate so profits that you make on your original investment are enormous. There is no other business that can make that kind of money. But the trick is that your original purchase has to be right also. You have to find the best deal in the area. You have to find out which person is desperate to sell the house. Sometimes you can find deals which are 20% to 40% below real value. If, to start with, you bought a real good deal, then your investment can grow by 100% the very first year.
There is no better investment than real estate. Your own home, where you are going to live, is the best investment for a beginner. The first investment you want to do in your life is buying your own house. As I mentioned before, you don't want to be a tenant. People who are tenants are always poor. People who own houses are rich. Real estate has always gone up. Ask anyone who has owned a house for a long time, they will tell you, home is the best investment they have ever done. People who own houses for a long time, they will tell you they cannot dream even of living in a rented place. If you own a house, in the long run, you live there for free, because prices of homes go up, and in the long run, if at all you will sell it, you will get all your money back. A home is also one investment which you can have without any down payment or only 5% of the value of the home. If your credit is good and you are making enough money, then developers and home owners desperate to sell their homes will put your down payments. The government also has lots of schemes for the first time home buyers, where you can put practically no money down. You can also go to your bank and borrow a down payment as a personal line of credit at a very low interest. You can also borrow the down payment at a higher rate of interest from some lender and buy a home, and once the house is bought and if you have made a good deal, then you can raise money on a home equity line of credit. Once you get your home equity line of credit, you pay back the lender from whom you have borrowed the money at a higher interest rate.
(ROI)Now if you use creative financing options real estate has potential for even larger return on your investments as you have invested hardly any money from your pocket and you are making money with others people money. Return on investment is called (ROI)
3cc) Buying real estate in partnership or groups.
If you find a real good piece of property at a very low price,there are always people looking to invest money. You find a good deal and group might give you may be 20% to 50% share without you investing any down payment.Group who has invested money will get return on their money plus what ever their share of income and profit real estate brings at the time of sale.
3C)MORTGAGES AND INTEREST RATES
Now, the rate of interest you will be able to get on your mortgage will depend on how much down payment you are going to put. Like if you are going to put 20% down payment, you don't have to pay mortgage insurance which generally runs close to 0.5% to 1%. If your credit score is high, your interest payments will come down. If you have some money in the bank as savings, lenders feel more secure and will give you better interest rates. You can borrow money on a 15 to 30 year balloon. Generally, 15-year mortgages have better interest rates but your monthly payments will be more. Lock yourself in for a fixed rate of interest, that way; you will know exactly how much your payment will be. Sometimes, floating rates of interest which are good only for one year can be much lower than the fixed rate for 15 or 30 year balloon. The problem with floating rates is that if the interest rates go up, your interest payments every month can double or triple. I have seen floating interest rates going up to 18% in the late '80s. Now, how much money at a time you will be able to borrow will depend on your interest rates. In interest rates are lower, you can borrow more.
To give you an example, if you want to borrow $100,000, it will cost you close to $6,500 at 5%, $7.200 at 6%, $8,040 at 7%, and $8,700 at 8%.
Now, if interest rates are 5%, you can spend up to $13,000 a year, and then you can borrow $200,000 on your house.
BUYING A HOUSE WITHOUT ANY DOWN PAYMENT
A lot of people stay in rental properties because they think they do not have any down payment to buy a house, so they cannot buy a house. In olden days, banks did not ask for 20% down payments. But now, banks and financial institutions do not require those kinds of payments. The government wanted people to buy homes so if you are a first time home buyer, you can buy the house by putting down as low as 5% down payment or no payment at all. A lot of builders sometimes unload homes with no down payments at all. They will also cover your closing cost only. The only difference is if you will buy a house without any down payments or low deposits then your interest rates will be higher and it will cost you more money to carry the house and you will end up buying a low-value house.
It is advisable to put up to 20% down payment. If you will do that, then you will be able to get really low interest rates.
3F)MISCELONUS SOURCES FROM WHERE YOU CAN HAVE MONEY FOR YOUR HOUSE
There are other sources from where you can borrow down payments. Borrow money from your friends, relatives, or parents for 3 years. When you are borrowing from these people you can offer them second mortgage on your house. Let us say you had 10% of savings to buy your house and you needed another 10% to make it 20% as a down payment to get the best interest rates then it is advisable to borrow 10% even at a higher rate for a short-term mortgage. The possibility is that you will be able to pay that loan within a few years.
1. Borrow against your 401K plan. You can borrow up to $50,000, but remember you will have to pay it back in 5 years otherwise you will end up paying taxes and penalties on it.
2. Borrow from your bank. Ask them to give you a personal line of credit for a small amount. The bank might give up to 5% of the cost of the house against your personal line of credit.
3. Borrow from your life insurance company against your life insurance policy if you have some value in your life insurance policy.
4. Borrow against your jewelry or valuables if you have money. People don't have a problem in lending money if they have some collateral in case you don't pay; they have something in their hands.
5. You can also borrow up to $10,000 from your IRA account without paying any penalty. The only disadvantage is that you will have to pay taxes as it will be considered as your income in the year when you withdrew it. To take $10,000 out of your IRA, make it sure you have not purchased a house in the last 2 years.
If you are thinking about buying a house, go and see your bank first. If you have been banking for a long time with the same bank, there is a good possibility that their mortgage loan officer will give you the best rates. But before jumping into anything, look into your local newspaper and there are a lot of different lenders who might offer you the best interest rates.
You can also meet some mortgage brokers if you have a problem finding yourself mortgage. Most of these mortgage brokers charge some fees for their services, so you will have to pay that upfront in the shape of points. One point is equal to one month of payments. It can vary anywhere between ½ point to 3 points. I will recommend avoiding paying points because it is coming out of your pocket sooner or later.
Banks or lending institutions also bargain a little bit. But your rate of lower interest means thousands of dollars in savings over a period of time. It is very important to shop for mortgage interest rates because it can make a difference of thousands of dollars over a period of time.
GOVERNMENT AGENCIES THAT CAN HELP IN BUYING HOUSES and start businesses.
1. HUD (Housing and Urban Development) –
HUD helps people in buying homes as well as helps people setting small businesses by providing financing as well as giving grants.
2. FHA (Federal Housing Administration) -
These are the two best sites to learn about different government programs as well as to find out if you can get some kind of assistance from the government. FHA loans can give you up to 97% of the purchase price.
3. VA (Veteran Affairs) – http://www.va.gov – Armed Forces personnel and war veterans can go here and get lower interest rates.
4. Fannie Mae – http://www.fanniemae.com;
5. Freddie Mac – http://www.freddiemac.com – These are two private buy government sponsored companies which help in consumer financing. You can also find some foreclosed properties as well as good prices on some real estate properties. It is also very easy to get financing through them.
COST OF FINANCING
When we are trying to buy a house or mortgage, one should be careful about the costs involved in all closing costs.
Appraisal costs: For the financial institution to lend the money, financial institutions require an appraisal of the property which tells them the real value of the property. It does not matter how much the property you are buying costs, the bank has to have its own independent appraiser. Most of the financial institutions have a list of their appraisal companies. For you to get the best price, it is recommended that you get a price quote from different appraisal companies to get the lowest price.
Title fees and title insurance: When you are buying the house, you want to have title insurance on the house. Most of the lenders also require you to have title insurance so that they can protect their interest in the mortgage money that they are lending you. Title insurance gives you insurance that there are no liens or other debts on the property and the person who is selling you the property is the real owner of the property. Again, mortgage companies can again insist that you get the title agents which are on their list. The buyer has to pay the cost of title insurance and has to be negotiated. Generally, it is better to use the same title company who already has issued the title insurance on the property and they already have done all the research on the property, and they can reissue the property with a very minimal charge.
When you will apply for the mortgage, if you have applied for it through the broker, then he will charge you an application fee for his work. But if you have applied for it directly through the lender, then you can negotiate with them for your application fees and most of the times, you don't have to pay them, even if you don't take the mortgage from them. But if you don't take the mortgage from a broker, they will keep the application fee.
3H:)Sub Prime mortgages:
People who had “teaser” loans or ARMs (adjustable rate mortgage) with only a 6-month or 1-year fixed interest rate and negative amortization loans started defaulting on their mortgages when these teaser and introductory low rates and negative amortization loans and interest rates became due for renewal.
Negative amortization loan: a typical mortgage loan payment is figured by using the loan amount, the interest rate, and the number of years to pay back the loan. For a traditional mortgage, you pay enough each month to cover some interest and some principal. But in a negative amortization loan, you don't pay back your capital and you don't pay enough to cover interest costs. The interest you did not pay is added to the loan balance. One way of looking is that every month you pay the bank, you owe them more. The main reason negative loan payments exist is to lower monthly payments.
Some folks use negative amortization loans to get into a home they otherwise cannot afford. People think they will have more income in the future and they believe as prices of houses are increasing rapidly, basically, they are speculating, so they won't have any problem in paying more than what they owe today as prices of homes will increase. Speculating on real estate is risky. And using a negative amortization loan adds more risk and leverage. The biggest disadvantage is if you have lived in a home for a long time and the prices of houses did not go up in your area as much as your house. Then in that case, not only did you not make profits on the sale of your house, but you actually ended up still owing money on the house. If one does not have money, their credit will be screwed.
When choosing a loan structure program for purchasing a new home, often the biggest concern for homeowners is, “How much will my monthly payments be?” The answer to this question is a relatively variable one, depending on the loan program. How much you can afford for your loan payment will determine how much the house costs, and what type of loan structure you will qualify for.
Teaser interest rates: A teaser or introductory interest rate that looks attractive now could cost a lot more later. A teaser rate is a very low starting interest rate or other types of loans, which are applicable for short terms, sometimes for 3 months to a year, and can, reduce housing costs on the early years of home ownership but can be very expensive in the long run.
Initial savings on a teaser rate might be good if you intend to sell or refinance the home, maybe you want to improve your credit score within a few years. If you are going to keep the home for a few years then teaser rates may not be as good as they look. Most of these rates invariably come with the likelihood of much higher rates and payments later on as minimum payments now result in deferred interest that will be added to the amount you owe and also result in higher payments later.
Introductory adjustable rate mortgage (ARM): A traditional confirming ARM may come with an introductory interest rate for a set period of time, perhaps one month or even up to 10 years. The ARM rates are short-lived and they depend on their structure and the volatility of the underlying index to which the interest rates are tied. These rates will fluctuate with the index rates to which they are tied.
ARM is periodically adjusted based on a variety of indexes. Among the most common indexes are the rates of 1-year constant-maturity-treasury (CMT) securities and the cost-of-funds-index (COFI). A few banks use their own cost of funds as an index, rather than using other indexes. This is done to ensure a steady margin for the lender, whose cost of funding will usually be related to the index. Consequently, payments made by the borrower will change overtime with the changing adjustable rates transfer part of the interest rate risk from the lender to the borrower. They can be used where unpredictable interest rates make fixed rate loans difficult to obtain.
“Buy-downs” from your builder: another promotional interest rate. In these kinds of interest rates, if a builder or a private owner wants to sell his property, he will pay the lender some parts of the interests for the first few years. For example, a 3-2-1 buy-down would reduce the interest rate by 3% in the first year, 2% in the second year, and 1% in the third year.
Subprime mortgages: are made to borrowers who do not qualify for a fixed rate mortgage due to their weak or limited credit histories. Subprime mortgages offer low interest teaser rates that reset to higher adjustable mortgage rates.
3H) Grant money:
Govt is helping existing home owners as well as people who are in trouble by offering different kind of grants.Go the this link below and you will see all kind of grants available to help people.
After real estate defaults Govt set aside billions of dollars to help people so that they don't loose their homes. Weather you qualify for those loans will depend on what income you make and assets you own. Congress made House financial Service committee to save financial disaster and help institutions and invididuals in trouble. Please go to this link below to have more information and see if you qualify for help.
If you are loosing your home Govt has set aside billions of dollars to help people.
RENTAL GRANTS FROM HUD: Hud helps people in renting houses. Owners can register themselves under Section 8 with Hud to rent these properties. Hud decides rental value of properties based on fair value of properties. This is programme by Govt to help poor people.They pay close to 30% to 40% of their household income and the balance amount is paid by housing authority. Section 8 can be obtained in single or multiple family dwellings, apartment or condominiums. Advantages are that as owner you are guaranteed rental income. As lot of people want to rent their properties under this programme it is important that you apply and then wait when somebody gets the voucher and they like your property then HUD will lease it from you. Another advantage is that people don't trash the property and stay their long time as they are getting help from the HUD.
If you have an existing mortgage and you had a high interest rate, then it will make sense to refinance the house if interest rates come down by at least one to two points. You have to calculate how many years you going to live in the house if you are going to refinance. There is always a cost of refinancing and after paying title, insurance, and other closing costs, only then you decide if there are any savings. Savings also depend on how long you are going to keep the house. If you have a variable interest mortgage and the new financing available can give you a lower fixed rate of interest then it is advisable to get a fixed lower rate. By getting fixed rates you can plan because your payment will stay the same until you have a mortgage on the house. People also refinance sometimes when they want to take equity out of their house. Only refinance if you really need money for personal use. Do not refinance and increase your debt load for luxury items, household items, or of course luxury trips. Many people can never build equity because they kept on refinancing and stayed in debt.
If you refinance and invest money in investments or a business which brings you better return on your money without risk, then it is worth refinancing. For example, if your house has gone up in value by $100,000 and you refinance it and took out $50,000 by refinancing and started a business in which your very year you made a profit of $60,000, so it was worth refinancing. On the other hand there are some people who have refinanced money against equity in their house and lost that money. If you have a good business plan, I will recommend you to refinance and take this risk, this is how some people became multi-millionaires. Sometimes when people lose their jobs and can not find a new job, then it is a good option to start your own business. People sometimes get old and lose jobs or retire and are bored sitting at home and their savings and social security is not enough and need extra money. Then they get into their own business. Sometimes older people are very successful because of their experiences. Older people also have savings and are more financially secure. Many people also are fed up with their jobs and want to start their own business with their own experience and ideas.
When starting a business always look into the conditions of the local economy. Make sure new jobs are being created and the economy is not dependant on only one industry. Check the cost of living, schools, and hospitals in the area. Most importantly, check your major competitors and the supply and demand of your product.
Making extra payments on your mortgage
If you have savings and money lying in CD’s and you are on receiving 3% interest and paying 6% on your mortgage then it is worth paying you mortgage and you will save 3% on the amount you have prepaid. If again you need money after a few years you can always get money against your home from a home equity line. In addition, you can get out of debt faster by making extra payments. When you pay off more money then you owe monthly, then whatever you pay extra you will earn whatever your mortgage rates are.
CHAPTER4----HOW TO BUY REAL ESTATE:
HOW TO BUY A HOMEHow do you know if it is a steal or a deal? Find a nice real estate agent who specializes in finding deals. A lot of real estate agents are laze and they do not want to do their homework, so they will offer you anything and everything. But you have to be smart. Ask the real estate agent to bring you comparisons in that area. Ask them to show the old inventory of the property which he is trying to sell you. Let us say if he is trying to sell you a condo in Miami, then ask him to bring you comparison sales in that building. Assuming there are condos which are 1,000 square feet in the building and which sell for $400,000, now you can get a similar condo with the same view for $280,000, then it is not a bad deal. When you are buying in any neighborhood, compare square-foot prices. If homes are sold for $150 per square foot, then it is a 1,000 square foot house, which means you can buy it. You can buy a similar house for $100 per square foot and the same footage for $110,000. But when you went to see the house, the grass had not been cut for the last 4 months but had some nice trees which could use a lot of pruning. Inside, the kitchen plumbing had been broken and all the carpets were flooded and so mold on those carpets smells bad, which means 600 square feet of carpet needs to be replaced. The walls have some holes and marks all over. Now you need to spend $3,000 on the landscaping to make it look like one of the best homes on the block, because you can plant some new shrubbery and dig out or trim down the trees which have overgrown. You can do paint and patch up the walls for only maybe $1,000 at the most. Get a carpet person or replace it with laminate wood and install it yourself for only $2 a square foot with a total cost of $1,200. Change some of the old moldings for another $300 and some old light fixtures for another $200, and if you noticed that the outside air conditioning unit looks old but is still cooling, it may still last you for a few years, just keep it in mind that a new one would cost about $1,500. Roughly, with a total renovation cost of $100,000, the home can start looking real good. Now the home will cost you a total of $100,000 plus $100,000 or more. It is still $300,000 below the market value in the depressed market. Similar houses at the peak were sold for $180,000.
Small homes are not easy to find at very depressed prices because there are a lot of buyers even in the depressed markets, because people, instead of paying $1,000 in rent and raising their kids prefer to buy a home and maybe pay $1,200 in mortgage and other expenses, and it is theirs. Once you buy the house, just remember again, you are paying the rent to yourself and it is savings which will eventually make you rich and you will say that this is the best investment that you ever did.
The most important thing to remember while you are buying a house is not to get emotional. You will like some houses and you will fall in love with that, but that will also make a good investment. Are you making a good deal while you are buying this house? Remember, the most important thing in buying a house is that you never buy the house if it is not a good deal. You should try to find a house which is at least 20% to 30% below other houses in the same area. You should never pay the fair market value of the property.
I have seen times in real estate when people put a deposit of $50,000 and they bought it in the pre-construction stage, and by the time the house was finished and ready for purchase, the price went up by $100,000 more. This is a time when there is a lot of speculation going on the houses and the real estate is really inflated.
I have also seen people overpaying the asking price because there are four other people bidding on the same house. This happens every few years for a short period of time. It is called the seller's market. Real estate sometimes has a double digit growth for years.
My advice will be to stay away from buying the house at that time. Keep on saving money and when the market settles down and prices go down, and then buy it.
I have been investing for the last 30 years. I only buy if I can find a deal at least 20% to 30% below its real value, not the inflated value.
It is hard to find those properties but they are always there. A lot of people buy real estate for speculation purposes and then cannot carry it. To save their credit, they have to sell so they get rid of them a lot below their value. A lot of builders also get stuck with their inventory and then they sell it at a much lower price.
I have seen in the Miami condo market, some people had paid $350,000 for a condo in the year 2005. Now, the same condo sold for $220,000. Sometimes, there are absolute auctions, and I have seen properties that sold at $0.50 to a dollar by the individuals, bankers, or sellers.
Death, divorce, estate settlements, job transfers, and all these cases will also make people sell their property a lot below the value. Sometimes people live out of state or the country. These people were either living in these properties and they had to move out or people had bought these properties for speculation. These people try to rent their properties and sometimes they get stuck with real bad tenants who don't pay the rent as well as have ripped apart the property. Finally owners end up selling properties and take a loss just to get whatever they can get out of it before losing the whole thing.
Auction of properties at the doorsteps of the courthouse--- again, these are the properties which banks had to repossess because people did not pay the mortgage and ended up foreclosing on them. Sometimes banks are willing to take losses on their mortgages and then sell properties a lot below their market value. Banks do not want to keep properties on their portfolios.
Short sales: when people owe money on mortgages and they are behind, a lot of times, banks do not want to foreclose on those properties. Sometimes banks will accept a lot less than what you owe on the mortgage. Sometimes it takes a lot of time to negotiate with the banks for taking those losses, but it is worth trying it because you can buy those properties much lower than their value.
Don't buy a fixer-upper unless you steal it. Be aware of those odd handyman specials. If you buy a home for $220,000 and it needs $50,000 in renovations and then you can sell it for $300,000Then this is not a good deal. You have to calculate the time it will take to fix it, as well as the time you will lose before you can occupy it. During that time, you still have to pay your mortgage and other expenses. If you can steal this house for $12,000 then it is worth it to put in all the work. Sometimes you can buy homes real inexpensive because they look rundown, like old paint, ugly carpet, and bad landscaping. Those kinds of cosmetic touch up jobs can be done in no time and if you got a good deal, then get it!
Find a home where you can live as well as get some extra income. Sometimes it can be a duplex or a house the way it is made. Some portion of it has a separate unit it can be leased out and can be an excellent source of income and can cover a lot of expenses of rent. These kinds of houses are like buying 2 houses in one shot, so eventually, if you will sell them, your profits will double or they can be an excellent source of income. People who had “teaser” loans or ARMs (adjustable rate mortgage) with only a 6-month or 1-year fixed interest rate and negative amortization loans started defaulting on their mortgages when these teaser and introductory low rates and negative amortization loans and interest rates became due for renewal.
4B)How much you should spend on House
If you have a very secured job then you can go up to 40% of your gross income that means $50,000 divided by 40% equals $20,000 a year that you can spend on all your lease and interest payments. But this is just borderline, after that,
To be financially independent, one of the most important things is to find out what you can afford to spend on the home. Generally, the rule of thumb is 30% to 40% if your income can be used to pay your interest payments. If you don't have any other debts like car payments, school loans, or other credit card payments, you have to include in that also. For example, if you are making $50,000, then 30% of that will be $15,000 a year. Now, if you have $5,000 a year on other lease or interest payments, then you cannot afford to pay more than $10,000 a year in mortgage payments. Now, if you have some good savings t is a danger zone.
I have seen people buying big houses. They put 20% down payment, their life savings, or they borrowed money to put down payment and they were spending 70% of their meager earnings in paying the mortgage. Either these people wanted to show off that they are rich or some of them bought big homes thinking that they can flip them and make money as houses were going up in value. A lot of these people who buy homes which they cannot afford end up either losing them or losing their sleeps and have to work two times more.
Now, once it is determined how much you can pay for the mortgage, you have to start searching for where you can find the bank who will lend you the money at the best interest rates. Contact your bank with whom you have banking relations. Read your local newspaper and find out who are the wholesale mortgage lenders in your area.
4dNEW HOME vs. OLD HOME
It is really a matter of preference to some people. Some will say old is good and a much better investment, and some will say new is good too. In this chapter, we will discuss advantages and disadvantages of both and compare them.
1. Lot size: most of the new homes are developed on very small lots because land has become so expensive that developers like to develop up to 8 lots per acre. A lot of new homes are also developed like townhouses or duplexes where your walls are touching your neighbor's. The disadvantage of living in smaller lots is that there is no privacy left and there is no place in the back or front yard, even the side of the road where kids can play. You cannot have big parties because of noise and parking problems. If you like gardening there is hardly any room to grow your vegetables or flowers. In a 10-acre development, 40 to 120 homes are built. Some of the old neighborhoods have bigger lots. A lot of these neighborhoods particularly in the suburbs, originally, they were like farm lands and they cut 1 acre to 5-acre lots. Now, over a period of time, they have become estate houses, but originally, when they were first bought, they were sold for nothing. These kinds of houses are becoming a thing of the past. Rich people are buying these houses, demolishing them, and putting up estate homes. Now, let us talk about old houses in rundown neighborhoods. If you have a big family, you can find a big home in an old neighborhood cheaper than in a new neighborhood where you won't be able to afford the house.
Can you afford to buy a newer house? If you cannot afford it and you need more space then you will have to settle for older neighborhoods.
New homes are easy to sell. Most of the people who are buying homes have the money to buy newer homes. They can put good down payments or have a good income cash flow to support new homes. They can hold these homes for 5, maybe 10 years and are happy with moderate profits. Sometimes new developments really shoot up in value, but most of the time, new developments really take their time to appreciate in value. But then again, they are easy to sell if you don’t mind whether you made money or not. People who don't know anything about construction and do not have time to take care of minor home repairs generally buy new houses.
Financing: A lot of times, when developers build new homes, they already have financing lined up for you. Some of these big developers have their own financing companies so they can sell houses with hardly any down payments and give you teaser rates which can be as low as 2% to 4% in the first few years and they will adjust to the market rates after the initial period. You cannot get these kinds of rates when they are old houses.
New houses are nice, but generally, you cannot get steals in the new colonies. Sometimes builders have a lot of inventory of these homes and they want to sell them--- some of the inventory cost a lot lower than what they originally sold for, because of the recession in the real estate market, otherwise, it is hard to find good deals or steals in the new houses department. A lot of people like to buy new houses because they look clean and modern. People like to impress their friends, they do not car if it takes them longer to build equity on the new homes. New development is also not established neighborhoods and it can take them years before they get established and all the houses get built. Sometimes new neighborhoods don't have schools close by, but new schools will be built in the coming years, so if you have children, don't move into those neighborhoods. Children want to play with other kids, so it is important for you to find neighborhoods which are close to good school districts--- people buy houses in those neighborhoods. Now, if you are in your middle age or old have a good amount of savings, then you should buy a house in a neighborhood which has a close-by golf course, Movie Theater, social club, hospital, and other amenities. You can look into these neighborhood houses which need a little bit of LTC (loving tender care) like paint, landscaping, laminate flooring, kitchen cabinets, or oriental rugs. Now, if you find a good home in those neighborhoods at a very reasonable price but because the home needs TLC and you don't want to do that yourself then ask some contractors to give you a bid for renovation on those things which are in bad shape and the amount of time it will take to renovate.
Buying an old home that needs repair (handyman special) you only buy those homes if you can really steal them and you have some experience in renovation or construction. Another advantage of buying one of these handyman specials in good neighborhoods is that you can buy them cheap and you can do the renovations yourself when you have time and new savings. So eventually you will have a nice home in a good neighborhood with a lot of value. Again, you need to know what you are doing and only buy in the neighborhoods where there are very few of those kinds of houses. If it is in a neighborhood where a lot of houses need fixing, don't even bother with those.
HOW TO RENOVATE A HOUSE
Now if you are not a handyman or don't know how to drive a nail into the wood, then don't do anything yourself. I will highly recommend paying a home inspection company to walk you through an old home. They may charge you $100 or a little bit more to inspect the home and tell you in what condition the house is. They will tell you what things need immediate attention and what things can wait and hold and approximately how much it will cost you to replace them. If the house is big and it needs lots of TLC, then I will recommend getting a second opinion from another home inspector and it will give you more light as to what you are getting yourself into. Don't get any renovations done from these home inspectors. They all have remodeling companies and they are not the cheapest or best workers. Again, the bottom line is to shop for it for one week and you should not have any problem finding the right people at a good rate when there is no boom going on. A lot of people who had jobs in the housing boom are now dying to do jobs at half the price.
Even if you buy a new house, you may not like the contractor grade carpets, tiles, or kitchen cabinets in the house. You will eventually change it in a few years. Include that in the price of a new home.
Now, if you are buying an older home, and it does have reasonable flooring, for example, it has nice carpets but you want to take them out and install laminate wood, then you are upgrading the place to your taste. If you are buying the place and you got a good deal but want to sell it in a few years for a profit then don't spend money to make it to your taste because you may not be doing things which the new buyer will like, so he won't have to upgrade it to his taste, or you won't get a lot of money which you put into it to upgrade it.
Now, after you established what is needed in the house and you already got quotations from subcontractors, then you have a clear picture of what it will cost to buy the house. Generally, it will still end up as a good investment because you can put wood floors and granite countertops which new homes don't have in that price range. You'll say that if the homes which are in real good shape in that neighborhood are selling for $400,000 (in the better times, they were selling for $500,000) in you get these upgrades done yourself, this home should not cost you more than $340,000 on the upper side. Within a few years, when the market turns around, you will be able to sell this house for $500,000.
Now, if you have to put $6,000 down and bought the house for $290,000, which means you should be able to get financing at only 5.5%. The rest of the money which is needed to renovate the home can be borrowed against the home equity line of credit at a very low rate of interest if you don't have it in your savings to invest.
Now, if you have decided to buy this house and are using contractors to finish your renovation, ask them to quote prices line by line of everything they are going to do. Get a separate price for flooring line-by-line items, cost of tiles or wood that you have selected, and cost of setting material, labor and guarantees. Don't agree on one price for all the jobs. In case there is a dispute and you are not getting along well with the contractor, whether it your fault or his fault, then disputes can be solved if the things are written clearly.
Make it sure that everything is written in black and white. Don't give any deposits upfront. Try to ask the general contractor what kind of profits he wants to charge on the job over and above his costs. Generally, contractors are happy to work with 10% to 15% of profits on top of their costs. You can also shop around for materials and buy them yourself, this way you can save on costs and buy better materials. This all depends on how much time you have and how much you want to involve yourself and if you want to save some money. If you want to make money from real estate business, I will highly recommend that you get involved with the renovation a little bit, as it will be a good experience for you.
If you are buying a house, try to see a lot of houses before you get into it. It will give you a lot of ideas how the homes are designed inside and outside. It will also help you in decorating and repairing your new house. There are a lot of open houses in the area on the weekends. Check your local newspaper because every day, they have a big real estate section. It will show you who has an open house in the area where you are looking. At open houses, you can talk to the agents about prices, as well as get a good look at the houses and compare prices. You can also tell these agents that are showing these houses what you are looking for. Always tell them you are looking for a real deal if not a steal. Again, remember, you have to steal it. That is how you are going to build your real estate empire.
Once you have decided where you are going to buy a house, focus on a small area. If it is close to your work and has good school, at least a 10-mile radius would do just fine. Now, make it sure that you are going to stick with your job, and that it will be around for at least the next 5 years. If within a year you intend to change jobs and work 30 miles from your present home or in a totally new city, then don't buy a home in a rush. Sometimes you cannot sell the house within a year and make profits, because first time you buy the home, there are costs involved in the title insurance, stamp duties, mortgage fees, and real estate commissions. You cannot cover these costs and expect to make profits in the very first year.
Now, once you are sure that you are not going to be moving out in the next 3 years and the kids are going to good schools, and then set your focus within 10 miles of that area. If it is closer to the kids' schools or you and your spouse's jobs and other amenities like shopping centers, banks, groceries, the YMCA, and so on, then you will cut down on traveling time and gas money and maybe you can live with one car if you are not making a lot of money. When kids are growing, mothers are busy driving them around, taking them back and forth to school, or driving them to their extracurricular activities, so it is important that the house should be close to the kids' school or your place of work. Now, if your spouse is working and you work quite far from each other, then it is better to find a home closer to where the wife is working, because most of the time, women have to take care of the home and kids, so the closer they are to their place of work, the better it is. They can also find a place halfway between the husband's and wife's work. But remember, if you have kids, schools are the most important thing. If you have to travel more to get to the good schools, then you have to find a house where the good school is.
BIG CITY AND DOWNTOWN AREAS
Now, if you are working in a big city downtown like Manhattan or Atlanta or San Francisco or Boston and you have a very good train system, it will be a good idea to buy a home in the suburbs, where they are much cheaper, safer, and cleaner. Suburbs do not have noises of trains, fire trucks, or ambulances. You can take a 30-minute ride on the train while you read the newspaper or a book until you get to your place of work. It is much faster and cheaper than driving in your car. Real estate prices in a lot of these suburbs are reasonable compared to living in the downtown area. I have seen a lot of these suburban prices go up by 20% to 30% a year.
WATCH WHERE JOBS ARE MOVING
When some big new companies, new schools, universities, hospitals, distribution centers, research centers, or factories open up in an area, then new resident developments also come into that area. Initially, these developments are sold at very reasonable prices because developers want people to move into their new developments, and eventually, these new developments can really increase in value. But most of the established old colonies where rich people are living will always keep on going up in value. For example, there is an old rich neighborhood in Winter Park in the Orlando area. People are buying houses which are only on 1/3 or ¼ of an acre. They are demolishing them and rebuilding new expensive homes which are going for over a million dollars.
WHAT KIND OF HOME YOU WANT
Before you decide what kind of house you want you need to look into some of these things. How much savings you have. Are you a professional or you having a good business. Your family net income after paying income taxes. Are you single or married? Is your spouse working or staying at home with the children? Do you have old parents or relatives which you need to take care of them and you have to live close to them. How many and how old are your kids? These factors will determine where you will be buying the house. Now, if your children are going to school then you have to find a home which is close to those good public schools where your child can get a good education. Home should not be too far from your place of work. Traveling is expensive on the car and gas. Traveling also takes away time from your family and work. It should also be close to amenities like Metro, shopping centers, a gym like YMCA, and the library. If the YMCA is close and libraries are close by, kids will love to go to these places after school. The YMCA is also a nice place where the whole family can swim or exercise together.
Now, if you are a single and very busy professional or executive, it might be better for you to buy a condominium close to your work, with your own pool, tennis court, gym security, computer room, business room, and so on. Mind it, condos have very high condo fees and do not appreciate as much as houses, but they are trouble-free properties if you are not an outdoor person and don't have the habit of playing loud music or throwing parties.
>4h. LEARNING VALUATION OF HOUSE OR ASSETT :One of the most important thing to be sucessful in real estate ,business is learning valuation of real estate.
There are few important approches in finding the real value of houses and commercial properties.
First is market approach which is finding out value of neighbour hood prices. At Realtor.com you can see what are the different houses listed in the market for sale. You can compare sale prices of different comparable houses in the same area in the last few months. There are some properties which are not listed on MLS real estate data base of realtors and are sold by individuals privately then you should compare prices with asking prices of those homes also. You must compare prices very close to each other preferably in the same subdivisons. Some time prices can vary from street to street in the same subdivisons.
Timing is very important .In market approach it is very important to see which way real estate prices are going. If in the last few years prices have gone up too much then stay away from buying. Every 10 to 15 years market when it gets overheated then bubble bursts and prices go down for few years and then they stay stable for few years.After staying stable for few years then they start going up and then you can sometime see double digit growth for few years. Ultimatly if you average out for long term they go up by 6 to 10 percent a year.People always loose when they buy by emotions and try to speculate in heated market. So it is very important to time the market initially when you are getting into it. If you buy during recession you can buy sometime at 30 to 50 cents a dollar.If you buy right and know how to value the properties then you can make money very fast.
Second way is to find out value by income approach. If property makes you 10% plus return on your investment after paying all your expenses then it has a good possibilty that you will make good money with that as rental will keep on going up and price of property will keep on going up. As it has income so it is supporting itself by its rentals. Make it sure rentals are inflated when you bought the property. Compare rents with other comparable properties in the area. See in the near future demand for the property. Make it sure area has good employment and growth in the employment opportunities. Valuation of those areas will always go up.
Third way to know value is to see replacement cost of property. There is always cost of land and construction. So if you are buying something at 50 cents to a doller just because there is recession and people don't have money or jobs and you are sitting with etc cash then you will make money when the recession finishes.
Most important thing is only buy when you can steal it. I always try to steal properties not even buy them when they are good deals as I know valuation of properties at a particuler time.You can always find good deals even in the sellers market most important thing is you should understand the market and valuations of real estate.
4i)HOW TO FIND DISTRESSED PROPERTIES
Most important thing is purchasing a property less then the market value so that right at buying equity is made. This is possible buying foreclosure homes or buying from people who are in a distress conditions. Sometime when houses are run down for long time they are called fixer uppers. They can be stolen at real low prices and then by adding value to them good profits can be made.
FINDING A GOOD REALTOR :Nowadays on the internet, it is so easy to find distressed properties. When you search for foreclosure , you will see a lot of sites will show up. Some of the sites, you might have to pay the money to search. For example, RealtyTrac.com, which keeps a data base and listing on all the foreclosed properties charges money. Once you do the search, you will see a lot of properties and Realtors . Go to the different websites and talk to few Realtors who have connections with the banks and who also likes to sell run down properties. Tell them that you are looking to buy a property which is 30% to 40% below the value. Good Realtor can provide valuable advice and won't cost you anything as most of the time they are paid by seller. Ask your real estate to bring you old comparison sales as well as new listings in the area .After you know the prices little bit then ask him to show you the properties so that you can see what are the best deals.
Auctions: You should also look into local newspapers listings. There are also sometime auctions by the banks and distress home sellers who are selling properties with no reserve prices and some times they go very cheap.
4j) Bank owned real estate.(REO)
Banks forcloses on property when people who owe money on the property stop paying their interest and capital which they had promised to pay back in a fixed period of time .After forclosing bank becomes owner of those properties.
Once bank forcloses on property from owners he sells them through real estate brokers. Some banks also list these properties at their web sites.Banks are not in a business of owning properties they are in lending business so most of the time they sell them lower then the market value to get rid from their books. REO can be very profitable if you buy it at a good price. I will recommend what ever prices banks are asking offer much lower price and lot of time banks accept those crazy offers.
Most of the bank owned properties are generally in bad shapes. When people loose their properties they are very sad,they loose their homes as well as credits so they destruct the properties. There are cases when people remove every kind of fixtures, cabinets even plumbing so that they can sell whatever ever money they can make out of it.So it is very important that before you buy any property you should look into cost of repairing the damages and add it to the purchase price to know the real cost of house.
Best source of finding these properties is go on MLS and find different agents who have connections with different banks. Another way is phoning directly to the banks or going on their web sites and search for REO properties.I will recommend go to a search engine and search for foreclosed property and name of cities where you are thinking of investing. This search will bring you list of properties as well as name of agents who are selling them. Local agents are the best because they know history of property.
Some REO properties links on internet are provided below.
TIMING AND LOCATION
Real estate, as well as the stock market is all about timing. In a business, they say you have to be at the right place with the right product at the right time.
In most of the areas, prices of real estate after 2006 had gone down. Areas like Nevada, California, New York, and Florida had taken a hit of 30% to 40%. But these states had also grown by 100%. Prices of houses in these states from 2001 to 2005 had doubled in some places. In the years 2008, prices are still going down in these states and there are no buyers. But states like Georgia, North Carolina, South Carolina, and some other states, prices are going up at a reasonable rate. These states did not have a bubble; rather prices were depressed for a long time. A lot of smart retirees and investors who made healthy profits during the boom period made some good money and sold their houses before the bubble started busting up, and then moved out of these states and invested in other states where they could find the same homes at sometimes less than ¼ of the price of what they would have paid in New York and California. Florida was considered a cheap place to live, where your money could buy a nice home and taxes were low. Then, in the last few years, the government raised the taxes, and then insurance went up double because of a few hurricanes they had, as well as prices of homes, they also doubled. Florida also had a big construction boom. Now builders as well as speculators are sitting with a lot of inventory which is not sold and there are no buyers for it. Florida has a lot of British and South Americans coming in who are buying because properties are very cheap as our dollar has lost so much value against their currencies. As Florida has a lot of Spanish population, a lot of South Americans love Florida. If any of these South American countries have some radical political leader coming in, then people will move out and invest in Florida. It will be a safe haven to park and invest their money. In the year 2008, when some of the high-rise buildings will be finished, Miami will have more than 20,000 condos which will be available for sale or lease. A lot of people who had put their deposits of up to 20% on these construction buildings have decided not to buy them, and later on their deposits are forfeited. Some of the builders are selling their new condos at 2005 prices plus whatever deposits they have received, they will give you credit for more.
Now depending on the time of market when you are buying. In the years 2002 to 2006 and in the sellers markets when people overbid , it was very rare to find residential properties 40% below value. At one point in 2004 to 2005, people were giving more than the asking price in some areas, but at the same time, there were still distressed sales and properties were sold at the courthouse below value. One should never buy properties at bubble prices. Like the stock market, if you bought the stocks at an inflated value, then you will lose. The real estate, as well as the stock market, they all crash. The real estate does not crash as bad as the stock market and does not affect a common person who is living in his own house. It does not matter too much if the prices of the real estate go up or go down. If it has gone down, it is bound to come back. You cannot easily create more land as well as develop more land. The cost of development as well as building is skyrocketing every day.
Look for people when they bought homes with a purpose to speculate, they borrow money for speculation and now they don't have money to pay for their mortgages and other expenses on the building. They have to give away this real estate or sell it, sometimes a lot below what they paid for it and take the losses, because they don't want their credit to go bad, banks will not lend any more money to them at any cost, which has a deadly effect: they end up losing everything, whatever they have. Some people have a small portfolio of 4 houses, which they can make sometimes in 4 years, because they can leverage these properties. A lot of people, for example, bought homes for $100,000, put $20,000 into renovation, and sold them for $150,000 in 3 to 6 months which was a very healthy profit when the market was hot.
It is very strange sometimes when people buy things that other people are buying. Just because the other guy made money, they think they can make money. But have you done your homework? A house in an average neighborhood which was sold for $100,000 three years ago is now being sold for $200,000. How much higher can it go in the next few years now? It won't, because somebody who is smart will sell that home at that price and cash up his profits. Ignorant people have read some book like “Become a Millionaire” which never explained that if you don't buy it right, you are never going to make money out of real estate.
So do your homework and you can become a multimillionaire if you know how to buy it right. When and how much you should buy your home is one of the most important financial decision you will make in your life time.
4lOPTION TO LEASE OR BUY FROM YOUR LANDLORD
Now let us say before you read this book that you were renting the house and you had three months to go before you lease expires. Ask your landlord if he intends to sell the house or condo in which you are living. If he is one of those investors who is stuck with old property and had bought it 5 years ago with an intention of making profits and now is tired and wants to cash up some of his profits, he might sell you the house or give you an option to buy his place after 2 years if you are not ready now to buy it. A lot of landlords are scared to lose their tenants if they are already sitting on some properties which are empty or occupied by the tenants who have not paid rent in many months. A lot of people also get old and want to sell their investment properties so they can retire and invest their money in bonds or mutual funds or use it for traveling or give it to their kids. So if your landlord is one of them then he might sell you the home at a very reasonable price. Now if you buy this property from your landlord and see that the rent that you pay him will pay for your mortgage interest, taxes, and insurance then jump into it. It may have to come out a little bit extra every month from your pocket, and then jump into this deal. Lock yourself into a 15-year fixed mortgage interest rate.
FINISH YOUR HOME WORK FIRST
I want to make it sure that you have done your homework before buying the house.
1. Have you found a good deal 20% to 40% below market value?
2. Have you found the house in the neighborhood where you wanted to be?
3. Have you done the math and found out what you can afford to spend on the home and negotiated the best closing costs and other appraisal and title insurance and survey costs?
4. Have you gotten the approval from some mortgage company to make it sure that they will lend you enough money for the house and the closing costs?
5. Have you visited the house and got it inspected to find out how much repairs are going to cost?
6. Do you have any savings left over in case some emergency comes up?
7. Have you found any agent who is going to make an offer on your behalf?
Sometimes you can find friends who are real estate agents and make them give some of their commissions that they earned from the seller back to you.
You have to be confident that this investment will bring you tenfold profit in no time and you are buying it right. Your real estate agent has brought you all the sales in the area, and you have visited and checked prices of homes which are for sale in that neighborhood.
4nTIME TO MOVE AND MAKE AN OFFER!
This is the most difficult part: making an offer, particularly if you are a first-time home buyer. Even the most experienced home buyers, when they make an offer to buy a property, they are scared. You are scared because there is a lot of money involved. You are scared because you might lose your savings and the property if something goes wrong. You are scared that you are not doing the right thing and it is a long-term commitment you can't commit to. You are also scared that you worked very hard but will you be able to finally buy it and be the proud owner of the house.
These fears are unfounded. If you did all your homework and got your numbers right, then there is no reason to be afraid. All you have to do is be confident that you are doing the right thing, and stand by your commitment.
In reality, it is not that difficult at all. Remember, real estate is one investment where even if you made a mistake, over a period of time, it will be forgiven. It is because of that reason that real estate prices will always go up particularly if you are investing in a home to live in if you had previously been a renter. Over 10 years, rent rates will double, but in the same amount of time, you home, which you have purchased will also double in value, and once you own your own home with very little or no debt, you will feel like a rich person even if your home is not an expensive one.
Try to read your real estate forms a few times. Bring a friend with you who knows how to write an offer. Make your offer subject to your getting the finance required. Make your offer also subject to inspection and that the vendor will give you a free and clear title to the property. Ask the vendor to sign a declaration that the home is free from hidden or latent defects. Make your vendor also declare that he does not know anything which adversely affects the value of the property. For example, there was one house where there was a murder that happened and another one had a sinkhole in the back which was filled. Sometimes people are superstitious and scared to buy these properties.
Always make a low offer. You can always go up, but you cannot come down in value once the offer is accepted. Most of the time, when you make a low offer, the owner might come back with a little bit higher price then what you have offered but it can be much lower than the original asking price.
Just remember, it will never hurt to make a lower offer because you can always go up. But remember, if to start with, you are getting a good deal and you have checked up the prices in the neighborhood, and then don't act fast because someone might make an offer higher than yours and you will miss the opportunity. Once you have found a good deal or steal then don't let it go. Remember, profits are made on buying and real estate will make you rich.
Most of the real estate companies or brokers and mortgage companies, when they will sell you the house, they will give you a list of closing costs to buy the property which you will also need as additional money to buy the property. There are some costs that are originally paid by the seller and some by the buyer. Make it sure that you are not paying it! Talk to your mortgage company, real estate broker, or title company closing agents and you will gain some knowledge from each of them. Ask them questions about things which are not clear to you.
Before closing, ask your mortgage company to give you a contract and the terms of it. Make it sure that you are getting the interest rates which you were promised. I have explained in detail how to find a mortgage and be careful of not giving away points and brokerage fees and application fees. You should get all of these things upfront when you sign up for your mortgage. It can take up to 3 to 4 weeks before you can get financing from financial institutions, so in your offer, allow 4 to 5 weeks before you set up a closing date. You will need at least that much time to get all your inspections and paperwork done.
Again, find a friend who has done real estate transactions before, or possibly involve a good real estate broker with you who can help you in writing an offer and closing the sale. The person who got you the real estate deal may not be the best person to talk to. There are so many real estate brokers everywhere. Some of them are very smart. Find one who is smart and let him get involved in your transaction. What it is, is that it is not costing you anything to involve a real estate agent, then the listing agent who is selling you the property has to share some part of the commissions with you. But your agent will be working with you and can protect your interests. He will help you in negotiating the price of the home mortgage and other expenses. A good broker also knows many people who are in the industry and might find you the best and also save you money and help you out with the closing.
Congratulations! Now closing date has arrived. Most of the time, you will have your broker at the closing because this is their payday. Once the home is sold, the broker gets his commission, which is generally paid by the seller. Sometimes, the broker can charge the commission from the buyer, and this also happens when your broker found you the deal or helped you close the deal with some financial institution.
CHAPTER 5-------RECESSION AND BEAR MARKETS
5A) Recessions and bubble bursts:
I have seen three recessions. When bubble happens stock market and real estate goes up in value in no time. Every thing becomes inflated or bubbles up and becomes expensive in value. Bubbles happen when their is boom in the economy all the real estate and stock market goes up in value not at a normal rate but at an inflated pace. There are lot of jobs and people get lot more then the real worth of assetts and services. But when recession happens everything goes down in value, there is high un employment and no demand for goods and services. No buyers to buy real estate or stocks.
After prices go up very fast and are inflated, then the bubble bursts . Real estate and stock prices can loose more then half within years and economy gets into recession. People loose jobs and people don't have liquidity or cash left. Smart people stay liquid never have to much debt. They buy during recession and bubble bursts when prices are low and every body else is selling and panicky.
Most of the people as they don't understand investments and values will buy when every one else is buying at inflated prices thinking that prices will keep on going higher. Warren Buffet one of the smartest investor and richest man of the world buys when everybody else is selling and sells when everybody else is buying.
As I invest for long term so during recessions value of my properties and some of the best stocks I owned went down, but it was a paper loss as I did not sell them. I did not have too much debt and had good rental income. I lost some tenants during recessions as they could not pay rents and I had to reduce rents for few others so they don't leave. Even after loosing tenants cash flow from those properties was still enough to pay my bills as well as leave me some profits even in recessions.
When real estate and stock market crashes after few years markets becomes stable that is the time to invest. I invest during recession and buy real estate and stocks at rock bottom prices and within few years have made 100 to 300 percent return on my money. There is still always a risk if prices don't turn around fast enough or go further down then you need holding power. I only invested in income producing properties at bottom prices with a very good cash flow so even if the prices go down further they still had a positive cash flow from their incomes. For example I bought a home for $62000 in a desire able neighbourhood which was originally sold for $190000. House was with a bank and needed some renovations I spent $10000 on renovations and leased it out for $1200 per month. Now if this house goes down in value little bit further for a short time it does not matter as it is paying itself and leaving me $400 per month profit. When markets improve it will be again worth $190000. I bought this house from bank less then price of land.
Governments are never going to be responsible. Every few years because of their fiscal policies people loose. Sometime interest rates are too high other times too low. Sometime Govt encourages lending and banks lend money who have no capability of paying it back, then after few years even best people cannot borrow money to run legitimate profitable businesses or buy houses. Many recessions or bubble in the economies happen because of Govt policies. In 1979 lot of savings and loans banks failed and were shut down by Govt then again in 2008 again banks and other financial institutions failed because Govt had wrong policies and no controls.
Real Estate and stock market bubble was nothing else but a big scale fraud and negligence by some financial institutions like banks, stock brokers, hedge funds, builders, contractors, real estate, mortgage brokerage and some dishonest people, who cheated honest hard working people by showing profits and life styles which were short lived and poor people at the end they lost all their savings,credit and instead of becoming rich pushed them into poverty
happen when over a period of time Govt has wrong fiscal policies
To stay in power some leaders adopt to wrong policies which give a boost to economies and their popularity but at the end same poor innocent people who had voted them become poorer. There is enough wealth in the world if it is divided properly and not used on wars and filling pockets of few and 5% of the top rich companies which control 90% of the world wealth every one can live a decent basic life with a roof on their head,food on their table free medicines for sick and education for their kids so that they can grow as responsible citizens of the world with some skills.
The US real estate market had a big run between 1996 to 2006. In most of the areas in the US, home prices had more than a double digit growth. Contractors, builders, homeowners, and banks--- everybody made money. Anybody who owned real estate became rich. Interest rates were at their lowest ever--- between 5% to 8%. Money was available freely. People were able to finance these homes up to 110% of their value. Builders were making 20% to 50% profits on their home sales. Prices of labor and materials had skyrocketed but there was so much speculation going on as if there was no end. Subprime mortgages became very popular. There were no regulations and guidelines of who should be given mortgage. People with bad credit or no credit could buy homes without any down payments. Builders, individuals, mortgage companies also committed some frauds. Homes were appraised for a lot more than their real value and then people borrowed money out on home improvement loans under sub prime mortgages up to 125% of the value of their homes. Home prices were inflated to start with, then giving people 125% mortgage to the value of their home was a clear indication that people won't be able to pay. A lot of people knew from the beginning that they could not pay and that they had no intentions of paying to start with. Banks could not foreclose on homes for 6 months and people lived in those houses for free.
The government had started raising interest rates and that burst the whole bubble. Before the real estate bubble burst people had spent money by borrowing against their homes on the false belief that property values can only increase and sometimes had a double digit growth for years which gave them a false high equities and Govt and banks lent them money without taking into consideration their income. Most of the people have most of their financial nest in their homes and once they loose that then the whole economy tumbles down.
5BRECESSION AND BLEADING
When recession comes jobs disappear. When jobs disappear people cannot pay their mortgages then real estate prices go down. Now people cannot borrow against their homes as home values have gone down. Some of the big towns which were dependent on some industry like auto and when auto plants shut down and thousands of people lost their jobs it was like a bleading in the communities. In the regions where we see high unemployment and their are no early future signs of new job creations real estate prices will fall dramatically and will stay like that for ever till the time new good permanent jobs are created.When there is a national recession prices will go down every where. Some regions where there was too much growth and prices had increased too much will get affected worst. Areas where lot of jobs got lost because of recession will also see a deeper effect of loosing home values and forclosures. If banks are liberal in lending and interest rates stay lower then real estate stays stable or goes up. On the other hand when banks stop lending and interest rates go higher then prices go down. To me, it was the greed of financial institutions, home builders, real estate and mortgage brokers and individuals who had no idea of how real estate and financing works. Individuals became greedy because they could buy a home without putting any down payments. Some of their homes were sold with lesser interest rates, which meant no interest payments now, pay it later after a year or two. The government made money very cheap and easy to borrow. Not only that people were allowed to buy without any down payments, but people were further lent money against their homes and against their home equity lines of credit. People had a great time. All the home furnishing and home improvement stores and basically all the businesses flourished because people were able to borrow money against their houses.
Then in 2006, the government started to get worried. The government before was sleeping. Mr. Greenspan had retired after 9/11 when the economy was getting into recession. He kept on bringing interest rates down so that the economy can take a turnaround. Housing books started. Builders whose profit markups were only 5% to 10% were now marking 20% to 40%. They could sell those homes because people could buy them without putting any down payments. Mortgage frauds and easy borrowing helped people to live for free. It did not even help them in living free but some people borrowed money against their home equity lines and from SUB-PRIME lenders and spent that money to have fun and buy lavish things for their homes.
I, as a small investor who had been investing in the real estate for the last 30 years, had already seen interest rates go up to 18% plus mild recessions when everything after a boom looks worthless. I was scared how the government had no policy and could not let the people borrow and banks and other institutions lend money on housing.
One time I had a friend of mine that was in the year 2004 who was trying to sell a house to another friend of mine at an inflated price plus was trying to convince him that his house will appreciate in value in the immediate future and he was making it sound very easy. I told him 3 years before that the bubble in housing prices in Orlando and Miami will burst. Prices in both cities which I understand had a double digit growth for the last many years and builders were building lots of houses and condos as if they were baking the bread which will be sold within the same day or next day.
People before buying should also very seriously look into their payment plans, how they are going to pay their interest and capitals, which they have borrowed if interest rates go up which on average stay at 6% to 8%. If you look into the history of the last 30 to 40 years, this is an average cost of borrowing for an average person with no credit and savings.
My logic was simple when I predicted that this real estate bubble will burst. It was based on the fact that people are buying houses with zero or very little interest rates and if interest rates go up, which they will eventually, how are they going to pay mortgage payments on their houses?
A lot of speculators from around the world were also allowed to buy their houses for speculation purposes. They thought prices had gone up in New York and Los Angeles and some other cosmopolitan cities. Europeans who could not afford to buy any properties in Europe because they could not borrow money as easily as here decided to take advantage of our cheap dollar. Before, you needed EU1.30 to buy a dollar. Now it has reversed. You need only EU0.65 to buy a dollar. For Europeans, our properties in Florida and many other parts of USA was a steal.
Foreigners who had bought most of their properties for speculation purposes did good for a few years and were selling, taking their profits, and holding them with the hope that their properties will keep on going up and up. Now, these foreigners, when they found out that that their properties in the last 3 years had gone down in value, had to put their properties on sale. A lot of people in Miami and Orlando who had 10% to 30% down payment when the developers were building high-rise condos decided to lose that money and did not take possession of homes and condos when they were ready to occupy. At least 50% of the Miami downtown condos are in trouble and have no one living in them.
When people have not saved money and try to speculate, then they lose. Real estate will come back in value and will again go up, but you have to have money to hold it if you bought it for speculation purposes. But if you bought it for speculation purposes, then if you borrowed 80% of the money to buy it, then your mortgage payment to the bank is basically your savings, as if you were paying rent to yourself.
A lot of people from the year 2002 to 2005 bought homes. This is the biggest fraud that ever happened in the mortgage industry. A lot of people had no idea about real estate, financing or savings, and they lost every penny they had. People lost their families when they lost their homes, and were thrown out on the street and were burdened with debt.
5CRegional ups and downs:
Prices of houses go up or down in the different regions of the country at different times. In the recession of 2007 states like Florida, California,Nevada got hit first and most. North and some other states did not get hit so badly.Lot of these regions where prices went down they had over built compared to what they could really afford. When sub prime loans came into effect and interest rates started going up then the bubble bursted and people could not afford homes.When people loose jobs and interest rates go up then Housing Affordability index of these regions was very low. People could not support payment of house mortgages with the income levals they had so prices crashed as there was overbuilt supply and no demand.Areas like Miami where so many condominium were overbuilt because of speculation and people don't have the income levals to support interest payments as well as high condominium fees so prices just crashed and so much inventory of condos was available in2008 and 2009.
Now, let us look at the bright side of it. If you are a buyer and living in Miami and you can afford one or more condos, now is the right time to steal it. You can buy it at 30% to 70% below the 2005 prices. Make a really low offer on these properties to the bank and see who takes it.Lot of banks and devolepors are unloading those properties. Always wait a little further and keep on talking to some real estate brokers too feel up the market trend. If you feel it is still going down and you cannot steal a property, then do not buy it. Once prices become stable and supply starts going down that is the time to steal some nice property.But buy it before it gets to late and prices go back to their original evaluations.
Florida real estate has been hit hard in the recession of 2007, but Florida has some of the most prime real estate in the country.Florida has twelve month round beaches and golf courses to enjoy and real estate is very affordable compared to West and up North real estate.
Michigan after fialure of auto industry has real estate at basement bargain prices.Investors who have a foresight and resources are now investing and will make their fortunes once the dust settles over.
CHAPTER 6-----CASE STUDIES OF PEOPLE
PERSONAL EXPERIENCES: ----I have been investing in the real estate for the last 35 years and have lived the life of a rich person. I have lived in the best homes and they have appreciated in value when I sold these houses. Whatever I have paid in the shape of mortgage, interest, and insurance, I got it back as it appreciated so much in value.
My house, which I had bought for $89,000 and after staying there for 16 years sold for $339,000. Basically, my mortgage payment was like my rent, which I was paying to the bank. I took a mortgage balloon of 15 years. My house had become free and clear after 15 years, so when I sold it, I had $339,000 in savings! Basically I was paying rent to myself. I also have a small business of retail--- running a small floor covering store. Most of the people who were working for me made money in the range of $8 to $20 an hour. I noticed that some of them who were making $8 an hour did not complain that they could not live on what they made. They had old but reliable transportation. If they were married, their wives were working full time or part time depending on how many children they had or how old they were. Their habits were simple. I noticed most of the time that they brought their own lunches and sodas and snacks to eat and warm up their food in the back kitchen and eat it. Most of them did not own their homes. Sometimes they were sharing their homes with their families or friends. I always insisted that they saved their money and bought their own homes. Some of the houses were available for $10,000 to $90,000. These houses were not as good as some of the apartments they were leasing which had swimming pools, cable TV and were cleaner and they were paying close to $600 to $900 in rent per month. But as their spouses were also working, they were happy and never complained that they could not pay their bills. These people, if they had saved a little bit of money could have bought one of those $50,000 to $90,000 homes. In the last 5 years, we had a double digit increase in the prices of houses. Those houses have now more than doubled in prices. For example, if they had bought a $90,000 house, it would be worth $100,000 now. They had an equity or savings of $90,000 in that house. How can you save $90,000 after paying Uncle Sam 30% in taxes and social security? Interest rates had gone down by 5.5%. So on a $90,000 house, total mortgage payments were close to $450 and taxes and insurance and maintenance were $250 a month. A lot of the time, some of their houses were available for no down payment or with only 5% down payment if you were a first time home buyer.
My own personal home, I bought it in 1974 for $20,000 and after 5 years when I sold it, it sold for $52,000. My family had grown as well as my income had grown 4 times so I had a necessity as well as I could economically afford a bigger home. I bought a new house which was 30 years old but right on the river with a nice lot for $95,000. The home was pretty old. It needed LTC (loving tender care). We changed our kitchen cabinets and some flooring after a few years and because it had a nice view, it looked like an expensive house. My family income in 1979 had grown to $150,000 a year which was pretty high in those times. At least is seemed to us that it was pretty high, as we were able to save a lot of it. I had two old cars; both were 2 years old--- a Ford Mustang for $2000 and a Chevrolet Malibu for $3500. I bought the Malibu from an old lady who had become a widow and had only 3000 miles on it. It still smelled fresh like new car inside. My sweet lady Malibu always started even when it was 15 degrees below zero outside. It had to be plugged in sometimes when it was cold. With the exception of changing oil and brake pads, I do not remember putting any money on it. God had made that car for me to serve me. Sometimes cars can be a pickle if you happen to get one of those pickles, you are spending money on repairs and losing time when you should be working. I had at least 30 old cars, which my family and my company bought over 30 years, with the exception of 2 on which I had problems, otherwise every car worked out great and was a good means of transportation.
My company and I have made millions by the year 2007, but I still drove my old 1994 Lexus, for ten years as it never gave me any trouble .It ran like brand new then why to spend etc money on new model cars.I have no lease payment on it and it brings me back and for the to work which is only 12 miles. If I lease a new Lexus L5450 for 3 years, it will cost me $1,000 a month. I would rather give my savings to charity and help feed the poor and educate the poor who need a college education. In my family, between me and my wife and my son, we need 3 cars. So we decided to lease one expensive car which we can share and we still keep our old cars running if they are in good shape. Why spend if we can save for our old times when we won't be able to work or will like to do charitable work to improve ourselves and the community?
In India while I was studying for my undergrad in Finance at Delhi University I started a private school at age of 20. I used to tutor high school students and make money to support myself . I decided to rent a place where I could hire other teachers and teach students. With the help of my parents I leased a building with an option to buy it from the Government at a very nominal rent to run my first school. Government at that time wanted to help business people so they leased that building for lot less then going rates. My first school became profitable in four months. I opened few more schools and they all were making little bit money. My parents and family joined me in managing those schools and we had close to five hundred students and forty people working. We are still running those schools and the real estate worth of those schools is close to few million dollars. Once I sell my share in those properties I have decided to give it to charity.
While I was running schools I had a friend who was an exporter of garments from India and was looking for someone to travel on his behalf to book orders for his export company in Europe. He agreed to pay my ticket to Europe and very little expenses for 15 days which were just enough to buy euro rail ticket as I had to move from city to city. I I had to manage to stay at youth hostels, friends, relatives, or real inexpensive motels. After travelling Scandinavia, Germany, Belgium, Holland I ended up in London and stayed with my uncle for three months who found me an odd job with one of his friend which gave me some money to travel more. I got enough orders for export and my friend who had paid my trip to Europe was happy as he got some good contacts and made some money with those orders. I returned to India after six months as I was home sick and did not like Europe too much.
I met my wife Kusum who at that time was living in Canada. In October 1974 after getting married to my wife I decided to move to Canada. My wife Kusum had a teaching good paying job in those times. In Canada with no money in pocket I could not start my own business right away. We both saved $6000 by the end of 1975 and put a down payment of $3000 and bought three bed room house for $26000.00. Banks gave us a line of credit for $5000. In the year 1975 with that money I started a small clothing store in a very bad mall. However I was able to survive as Kusum had a good job and with one study income coming we were able to pay our bills and still save some money. As I had experience in garment export I started importing readymade garments from India, Pakistan and China. I was wholesaling this material to other stores. My company became very profitable in no time and I had close to five hundred thousand dollars of inventory and accounts receivable within two years. Clothing business had a very good cash flow.
Montreal had a big depression in the real estate market around 1978. I bought my first commercial building in 1978 in the poor area of midtown Montreal. The property had two shops on the ground floor and a rooming house on the top two floors and six one bedroom apartments on the back of the building, which were very old and needed renovation before leasing them. The guy who sold me the property was fed up with the rooming house which was not making money but rather losing money, and the apartments in the back were more of a nuisance because they were old and only three out of six were leased. It was winter and apartments which were empty they were not heated and some pipes had busted because of freezing. Few tenants also were not paying rents and landlord was not taking care of few small repairs which were needed. The stores were leased out at a very low rent, although their leases were expiring and the rents could be increased in the near future. The building was not making any money but somebody had to take care of the tenants' headaches. The landlord who owned the building was trying to do everything himself as he did not trust any one . As he had another retail business to run, he could not take care of the building. This landlord was also of the nature that he had to do everything himself so he was tired and as he could not do everything himself he wanted to sell the building and get out of the building.
This landlord sold me this building for $115,000 with the $25,000 down payment. I did not want to take out more than $25000.00 from my business to buy this building. The bank only gave $65,000 loan as the building did not have any revenue. Now where did I find another $25,000 plus closing costs to buy the building? I asked the landlord to give me a second mortgage for $27000 at 17% and I agreed to pay him back the money with interest after 3 years. If I did not pay him, I will lose my $25,000 which I had given him so he agreed to give me second mortgage and I became owner of the building.
As I had a very good cash flow from my clothing business so after buying the building within a year I renovated and converted rooming house into four studios and leased them for $600 a month each. I also renovated three apartments in the back building which were empty and leased them at $325 each. After 18 months when one of the store lease came for renewal I leased it for $1800.00 a month old rent was $1000.00 a month. After two years building had close to $72000.00 of gross rental with a net rental of close to $56000.00. Bank appraised the building for $55000.00 and lent me $420000.00.
Now I had close to $300000.00 after I had paid all of my debts. Over a period of next two years with this $300000.00 I bought eight run down commercial buildings. Most of these buildings were bought at less than half price as there was a recession in the real estate market. Because of depression in the real estate market most of these buildings had no rents coming from their commercials stores which were on the ground floor. I opened my own retail clothing stores in those buildings wherever I had an empty store. Some of my stores were making profits lot more in excess of my interest mortgage payments and some of them were making enough money to pay at least interest payments on buildings. Some of these stores I leased them wherever I was able to lease them to other people at lower then marking rents. I could afford to rent them at lower rents as I had bought these buildings at much lower price. Where ever it was necessary I also did some minor face lifting and renovation to those units in the building which were vacant so that they can look better and then it was easy to rent them.
My import business was doing extremely well. Within three years I had lot of cash flow from my buildings as they were more than 90% leased. As I had good cash flow from my clothing as well as real estate business banks were willing to lend close to 90% loan to the value of new appraisals on these renovated and leased buildings. Over a period of next five years I was able to raise close to $ 2 million of new money by borrowing against these buildings. I kept on buying more commercial buildings which were empty and needed new faces and tenants. I only bought these buildings from people who were distressed and were willing to sell them with my conditions. I kept on refinancing my existing buildings and buying new buildings and also started buying raw land with that money. Within 15 years I had over $30 million dollar of commercial properties, agricultural, residential and commercial lands and $10 million dollar of borrowing. Five million of this borrowing was done to buy and speculate on land.
My down fall and blunders:
I decided to make quick money. I had bought few lands and flipped them with as good profit very fast. Land buying was an easy business as we did not have to worry about renovating and leasing of properties and was a much easier business. But lands did not have any cash flow and banks did not want to lend or in some case lend only fifty percent to the value of purchase price. Interest rates on borrowing against these lands was close to three percent higher than the borrowing against commercial properties. Banks will also charge close to another three percent as closing costs when they were lending money against these lands. Banks have a bigger risk when they lend money against the land so they charge much heavy interest rates.
I started raising money and bought close to nine million dollar of lands. I over expanded very fast. I started selling my commercial income producing properties and started buying land thinking that I can sell them and make faster money. I did not study the areas well, There were no new jobs created in the area rather some jobs had moved out. There were hardly any new homes built . I had no experience in the land development. In some cases cities already had lot of land already developed and local politicians were friends with existing developers and did not want any new developed land. To develop land it is important to be friend with the cities and local politicians. If you don’t know and are not friends with local politicians and city officials then at any time when you will go to city for land developments then they will not let you develop land and will put all kind of restrictions. It is also very important to hire good engineers and professionals who specialize in developing land who already are working with the city and know the officials of different Governments like planning and zoning, environments etc. Without having a good team to work it can take years to develop land.
In Canada Government had increased prime rates to slow down the growth in economy and inflation. There was a big recession in the real estate and in general all over market had no money and because of lot of bankruptcies properties became empty and there was no buyers for land as demand had completely dried up and people were moving out of province because of political reasons. I kept on borrowing new money at fluctuating heavy interest rates which went up to 17 % when Government started increasing prime rates. When you borrow money on land banks also charge higher interest rates and they also charge heavy lending fees and closings costs. I also end up giving them our personal guarantees and cross collaterals on our other properties. Most of the banks don’t lend money on land as it does not have any cash flow. When the development stops for many years and there is no demand for land then prices of lands don’t go up and you still have to pay interest on your borrowing and taxes. So don’t borrow money and invest in land for speculative purposes if you are not absolute positive that development will continue plus you are ready to develop it right away. If you have your own money in savings which you don’t need right away so that if values of land don’t go up then you don’t have to pay interest and capital to the bank you can speculate on bank. Land does not need any management it can be very good for investment if you have etc money lying in low interest bearing savings account which you don’t need right away and new jobs come in your area where you have land.
Province of Quebec which is a French speaking province wanted to separate from rest of Canada so lot of English Canadians and English speaking population started moving out of Quebec. All the big company head offices had started moving out of Montreal and most of them they moved to Toronto and to Calgary where lot of new jobs were created in the oil drilling and Vancouver. Toronto, Vancouver, Calgary started booming as most of Quebec Head Offices moved to Toronto and other cities. No one was investing in Montreal. Lot of people came from Hong Kong when England was giving Hong Kong back to China as it was easy to get emigration in Quebec then rest of Canada. But most of these people from Hong Kong once they got their emigration they moved out of Quebec and left for Toronto or Vancouver. Quebec in Canada became the worst place to invest in the real estate. French Canadians had such a hating and separatist attitude that English people had very hard time in living in Quebec. French Canadian Government policies were not favorable for any new investments and even existing businesses were moving out. Land values had dropped and did not go up for next ten years. Rents dropped down between 1987 and 1997 and Government was broke so they heavily taxed people and property taxes went up by more than double in some cases. As there was no demand we ended up losing properties as we could not pay property taxes and State taxes on Capital to the Quebec which was a tax on borrowing.
I had land for 600 homes in Quebec .I realized that Quebec will not have new industries and high unemployment rates and there was no way to make any money in French dominated Quebec areas. Then in 1990 I decided to move to USA. I had never thought that I will lose everything in Quebec in the next coming years. I kept on paying interest and taxes and was not able to sell any land in Quebec. We lost most of our assets in Montreal like lot of our other friends in the next many years in Quebec.
One of my biggest mistake was that I sold most of my commercial good income producing properties which were in Montreal paid lot of capital gain taxes which in some cases took away more than 35% of profits and invested money in land in French dominated areas of Quebec where there was no growth and jobs were disappearing.
I came to retire in Florida, but I ended up working again. I had brought close to a million dollar to invest in Florida. I bought my own personal house from a bank. Contractor had borrowed money and had left this home unfinished. I bought the house close to $100000.less then the market value of homes in that area. I also bought few free standing commercial buildings as well as one run down shopping center. Free standing buildings were empty and bought them from people who were living out of town or in an auction. These were distressed properties and I opened my own floor covering stores in them. Within few years I was able to acquire few more commercial and industrial properties which were empty when I bought them and then I renovated them with a very small amount and leased them. Now most of commercial buildings we own either they are now leased out to other tenants or we have our own stores in them. But all these properties have a very good cash flow and have appreciated in value by more than three to six times in the period of fifteen years. We again have built back multi million dollars of equity in our real estate and businesses. In Quebec also prices of land has gone up and overall Canadian Economy is doing much better. Canadian Dollar has become very strong. I will soon starting subdividing those lands and at least get all my investment back with some profits. Remember basic principal is real estate always goes up in value it may take years but if you have holding capacity you will always make money
James------- met this new girl, fell in love with her, and they went on a pre-honeymoon trip, because they were thinking of getting married, so they decided before they get married, why not take a trip? The trip resulted in separation within 30 days after the trip. The reason was simple. James did not know how to manage his finances. As James did not have any money, he was a fresh graduate from UCF, very brilliant, both parents were supporting him while he was studying, and now, parents also did not have any money, plus he had finished his studies, so he had to stand on his own 2 feet and learn how to live. He did find a decent job. But as he did not know how to manage his finances, it put him behind many years as he lost his credit and could not borrow anymore. He had so much of old debt which he had taken while going to school, plus new debt of credit card payments finished his beautiful career because he kept on getting deeper in debt and eventually declared bankruptcy which means he had to work, work, work, and he could not make his money work for him for the next few years. Credit cards ruined his life. Credit cards should be only for the people who have money and who have the capacity to pay. A person who is making $40,000 gross and $32,000 net should be only allowed to borrow 5% of that, which is $1,600. There should be only one credit card and not 10 credit companies offering $5,000 to $10,000 each to a fresh high school graduate who hardly has any capacity to earn and forget about saving. Credit card companies make it easy to borrow.
Jon 19 ----- years old got out of high school and had started working on odd jobs. He belonged to a good educated family, but unfortunately he got into bad company at his school and started failing in his high school. So as soon as he got out of high school he started working because he did not have good grades and had no intention or willingness to go for further studies. He is 26 years now and during the last 5 years, he had a steady job in the furniture warehouse. He makes close to $10 an hour and brings home close to $310 net pay.
He likes to smoke and drink beer and have parties. He does not want to work more than 35 hours. He has bunch of friends who are drop out from high schools and have the same habits As he does not want to take any etc. responsibilities and does not want to move to the next level at his place of work. He was offered job of sales person but did not take it as it involved working on Sundays and doing overtime, He could have made double the money by working little bit harder and smarter and could have really progressed. His friend Ronny took it who had joined the company two years latter and is now Jon’s boss. Every Sunday Jon likes to go for fishing and getting drunk.
He is sharing his apartment with his friend. He has been continuously changing apartments as they don’t pay rent and landlord sues them and throws them out. He has been sued may be four times in the court house. After when he is thrown out of his house on the street and has no place to go sometimes he ends up with his parents who are old and have hardly any room for themselves to live in their tiny apartment. Omes a burden on them instead of any help to them. They don’t like his coming back to stay with them as he Joan then sleeps on their sofa in the living room, smokes and brings a pack of cigarette and makes his parents life miserable. As he cannot bring his friends to his parents so as he can find another friend or landlord who lets him move in by paying one week rent he moves out again. He can easily pay his rent if he can plan his expenses, but unfortunately bear and party comes first before the rent. Lot of time electricity gets disconnected and he has to wait for few days up to his next pay claque and savings to pay those bills. He has a steady income but he does not know how to budget and has habits of spending money more then what he makes. He does not have any credit cards so there is no credit. He has no plan of improving his skills or getting better education. He lives day to day. His brother who is an attorney had given him an old car will also need replacement but Jon who is now 25 has not saved any money and once that car if it will need major repair will not be able to fix it. His brother has refused to lend him any more money, because when he borrows he promises to pay him back but he never does so his brother thinks Jon is very irresponsible and will never be able to stand on his feet.
Robert, 25----- had a GED diploma. His father was a handyman. Robert used to work with his dad since he was 15, and has been a floor installer for the last 5 years. He is very good at what he does. He has a truck and a car. He loves to smoke and go out for dating every night.
Juan:-----is an electrician, makes $25 an hour, but only works when he feels like it. He is very good at his work but he keeps changing jobs every few months. He goes on fishing trips every month for 5 to 10 days at a time. He loves to drink beer.
Frank and Ronny, both 25------ are twin brothers. They both moved from New York when their dad died in a car accident at the age of 22. They rented an apartment. They both work like a team and build kitchen cabinets. They make close to $450 each. They are living in a nice apartment building and love their pool. They pay close to $1,500 a month on rent.
David, 26--------, is a computer programmer. Just got out of UCF a few months ago. He makes $45K a year. He loves to drive a new car and also has a beautiful motor bike. He just got married. His wife is an executive with a major advertising company. He spent a lot of money on the wedding and is now loaded with debt.
Ramu -------- moved to the US from India in 1974 He went to school at night and worked during the day. After 2 years, he bought the duplex he lived in from his landlord, which he was sharing with a friend. By the age of 25, he had saved $9,000. His landlord, who was an elderly person, used to live on the ground floor and Ram would help him maintain the duplex. Ramu would cut the grass sometimes in the summer for free and the landlord liked him and treated him like family.
His rent was only $250 a month and it only went up by $50 in the next 5 years. Ramu got married at the age of 25. His wife was a nurse. His friend moved out of the apartment.
One day, the landlord invited Ramu over and told him that he was thinking of moving to Florida to be with his son and that he wanted to sell the duplex, and he offered it to Ramu for $90,000. Ramu did the math and told his landlord that he only had $9,000 in his savings and banks in those times needed at least 20% down payment which is $1,800 plus closing costs so he was short by $11,000. The landlord knew that Ramu was a smart and honest kid who knew how to manage his funds. He told Ramu that he will lend him the money to close the deal, but he will take a second mortgage on the home for a period of 3 years. He will only charge 7% interest and that will become due at the end when his mortgage is due which means at the end of 3 years he will pay him back the $11,000 loan money plus $2,310 interest. Ramu did the math on $72,000 which he was going to borrow from the bank. His interest and capital payment was going to be $400 a month. His taxes, which were roughly $1,800 a year would be $400 a month plus his maintenance would be $50 a month. His insurance would be $60 a month. So if he would rent out the top apartment where he was living for $300 a month, then he can easily pay his mortgage and other expenses because he was paying $300 rent to his landlord for his apartment.
He may run short of money here and there, but now because he was married and his wife was working, they had enough income to support these expenses, plus he realized that within 3 years they would have enough money to pay back the landlord. As a matter of fact they could pay him back within one year. So he negotiated another deal that within one year, if he pays back his landlord all the money that he owes from the date of closing that he will not be charged interest. The landlord agreed to the deal as his place was free and clear, so he took a second mortgage on the building and Ramu became the owner of the duplex in 30 days. Now, after signing the contract with the owner to buy the building, Ramu put a side outside to rent out the top portion of his duplex. He also looked in the neighborhood to find out what other people were charging for the same kind of facility. He was surprised that apartments were going for $400 and in some cases they were going as much as $450 a month if they were furnished and they all asked for the first and last months' rent. Apartments were very close to a university, so there was a demand from university students. This was a big duplex and had 3 bedrooms. Ramu decided to rent out these 3 rooms to individual students for $175 a room. The apartment had an old fridge and stove and washer and dryer, which the landlord was not going to take with him, so Ramu decided to buy the entire landlord's furniture, including the beds and the sofa for $2,000. Ramu told the landlord to increase the second mortgage from $11,000 to $13,000. The landlord was happy to get rid of his old things which he could not have taken with him. He could have made the same amount of money if he had sold them one by one. Ramu got a beautiful furnished apartment with window coverings, which he will have no problem renting out. He went out to the university and put up an ad on the bulletin board for leasing the rooms and in no time got responses from 3 good students who were majoring in medicine. It was their first year in college and they were all good friends. They gave Ramu post-dated checks for the month of June rent.
Ramu became a landlord at the age of 25. He came to this country from India at the age of 20 with a high school diploma and a year of college. He started working at a mattress store as an assistant manager and shipper. His job was to lift mattresses when the new shipment arrived in a trailer, and to put them in a customer's truck when they were sold. He was tall and skinny, but he was physically strong and did not mind lifting mattresses all day long. He always worked with a smile on his face. He went to school in the evening and was able to get a scholarship because he was brilliant in his studies. When the manager of the store quit, the owner decided to make him manager and he got a raise within 8 months and had 3 people working under him. He finished his undergraduate degree in 5 years. It took him longer to get his degree because he could not take too many credits as he was working during the day. Before he got his degree, he was a landlord also and was married. He doubled the sale in his store within a year because he was very nice to his customers. He trained his staff and motivated them to learn the business. His store became the best producer in his region. His company wanted to promote him to be the general manager of 10 stores but he refused to do that because he knew it will be too demanding and he won't be able to finish his studies and take care of his family and tenants.
After 2 months, when Ramu was a landlord, one of his neighbors approached him and asked if he could rent out his garage to him for storage and wood shop for $100 a month. Ramu walked through the garage with his neighbor and decided to rent it out to him. He had an old lawn mower which he did not need because he had hired a landscaping company to maintain his lawn for $25 a month for twice a month. He went to the Home Depot and bought an 8' X 8’ shed for $250 and took half a day to assemble it and in that he could store all his tools and he rented out his garage to his neighbor for $100 a month. Ramu was now getting $175x3=$525 from the duplex plus $100 from the garage--- a total of $625 a month. Ramu's total expenses were $660 a month and he was making $625 a month in rentals. He noticed that he was living for free within 3 months as his tenants were paying rent. Now, if he had done the same thing that he did with stairs he can put $475 of profits in his pocket. Ramu and his wife were making close to $3,500 a month. After taxes, they were bringing in $2,800, out of which they were saving $1,800 a month--- that was in 1978. They hardly went out to eat. They were both very fond of cooking, and like any other Indian, they were very fond of how good chicken curry tasted. They bought one old Lincoln car for $1,000. It was a really old model, but it ran like new and took them wherever they wanted to go. Ramu's wife used to work in the downtown area. As their duplex was close to the train stop, she always took the train to and from work, as she was used to it, and it was cheaper and faster and she never had to worry about parking. Groceries, in those days, only cost $240 a month and they could cook only the best food. Gas was only $0.99 a gallon and it only cost the $120 a month for gas and train tickets. Their electricity and water bills were $90 a month and $30 on fast food, $50 on a party where they will have a small get-together with friends; $50 on clothing, and $140 on other miscellaneous things.
Ramu also noticed that there were 6 other duplexes in the same neighborhood which had sale signs. It was a 30-year old neighborhood and had a hundred duplexes with a 3-mile radius of the university, and these places were usually rented by students. Ramu had a degree by now and was promoted to the managerial position of his company. He could have made $70,000 a year at some other place but he decided to stick with his old company for $35,000 because it was a more secure job. He agreed to give them 35 hours a week on an average but he had flexibility. Although he was working for this company, he was his own boss. One time the company opened a new store and he ended up working 55 hours so the company gave him a week off. Ramu will go around his neighborhood and call agents on different duplexes, and visit them after work for one hour.
He had found 2 more duplexes which he could buy on the same terms and conditions as the one he had now. One was a little in rough shape, but was $10,000 cheaper, another one was in much better condition but was $10,000 more. Ramu already had his duplex for 10 months and had saved another $15,000 in the bank. He had become good friends with his bank manager. He told the bank manager how he was living free and that he has degree in finance. He also told him that he had to pay back his landlord what he owed, which was due in 3 months. Banks always like to lend when they feel that their money is safe and the person has a regular job and a good credit. So the bank manager suggested that maybe he could give him a home equity line of credit which is at 7% and he should be able to give him close to $48,000 on his duplex. It will not cost him anything with the exception of the new appraisal fee which was $250 plus $200 in dock stamps. But he had to back his landlord's $13,200 once he gets that money. Once Ramu got $48,000 on his duplex Ramu paid back $13,200 to his landlord.
Now he was left with $34,800 plus $15,000 which he had saved, a total of $49,800 which he could put as a down payment on the duplexes he wanted to buy. Now, Ramu had so much money and was feeling rich. His wife suggested that maybe they should buy a new car which will only cost them $16,000. But Ramu did not agree to that. He first wanted to make money and then spend money. He wanted his money and leverage of money to work for him. Ramu was spending a lot of time on the weekends and evenings studying different homes which were on sale in the area. He also noticed that some new duplexes were built in the suburbs which were 15 miles further. They were beautiful but they were sold for $180,000 and were only leasing for $950 a unit. They were new but it did not make a sound investment. Ramu realized that if he bought one of the apartments and leased it to the tenants he will have to come up with $800 out of his pockets for his mortgage. Insurance and taxes were all double than what he was paying but rents were just a little bit more. The apartments were beautiful if you were going to live in them. But then there was no train going to them , so you will need another car which means an additional expense. In the meantime, while Ramu was looking, he had become good friends with some brokers who were working in that area. One broker brought him a deal in which one guy had 6 duplexes and he fall sick which he will like to sell in one shot, possibly for $90,000 each. This seller was an investor and had some other bigger interests and wanted to get out of the duplex rental business when he got sick. Ramu made him an offer on all of these units for $540,000 and he told the seller that he will put $40,000 down and get the financing from the bank. Whatever financing he can get from the bank, he will take it and the balance of whatever he will be missing, the seller will give him a second mortgage for a period of 3 years at 6%. The seller agreed to do that as he was a very rich man and as he noticed Ramu was a smart young man and had a smart wife and they both made good money and he did not feel that he will have a hard time getting the second mortgage. Ramu was able to get an 80% loan to the value of the apartments from his bank which means he needed $18,000 per apartment with $108,000 of total plus $13,500 for closing costs. He had $40,000 which he gave to the seller along with $94,500 from second mortgage which was close to $15,800 each on every apartment. Now Ramu had 12 new units, 10 of them were leased at $350 a month. As each duplex had 2 units, his total income was $700 from each duplex. His mortgage interest, insurance, and other expenses were just being covered by his rentals. He furnished the other 2 units and this time he leased each room for $200 each, and as soon as the leases expired he will convert them into student rentals. At the end of 3 years each duplex was bringing him close to $5,000 a month. Ramu had 7 duplexes with $3,500 a month rent coming up in his pocket.
Mitchell---------, who is single, 40 years old, has a degree in marketing, and is, making $20 an hour, is always complaining that he is not making enough money and cannot pay his bills. His problem is simple.
When he had joined me, he was in a debt of $43,000 from different credit card companies. I asked him, “How did you get into that credit card debt?” and he said, “It's a long story.
So I asked, “Tell me, what your long story is?”
“I just got divorced 6 months ago. Two years ago when I got married, I threw a big party, then went for our big honeymoon for 15 days, and then I bought another big fancy diamond ring for my wife, and so on. I had saved close to $28,000 when I got married so that is all gone, and now I am in debt for $43,000. Si I basically spent over $75,000 in the last 2 years on top of my household expenses.”
I asked him, “What were your household expenses?”
His reply came with a smile. “We paid $1,800 a month in rent for a big downtown condominium. We had 2 leased cars for $700 a mo nth. We bought our furniture, appliances, 3 TVs, fridge, stove, washer, dryer, dishwasher, and other miscellaneous items on Wells-Fargo credit cards which was another $900 a month. Insurance was another $700 a month. When our baby was born, we did not have medical insurance, so we were on a payment plan with the hospital otherwise collection agencies and insurance companies would be on our heads.”
Mitchell then explains that his wife was working for a Marketing company and selling advertising signs and also making close to $50,000 a year. “We both were bringing in close to $65,000 after taxes, which were not bad. But what happened after 11 months of marriage, she got pregnant, and then after 5 months, she could not work as she had to be in the car 7 hours a day showing billboards, so she quit her job. Now, with one job, I am behind in all my bills. The only alternative I have is to go bankrupt.”
I hear these stories all day every day. How our young generation who is given credit cards the moment they come out of college spend the money on nonsense. Somehow, credit card companies, car dealers, and a lot of these companies which give loans have your data and they know how much money you will be making when you will come out of college. They will lend you money so that you will be their slave all your life and work for them instead of working for yourself.
My employee Mitchell, instead of spending lavishly on the honeymoon should have put his savings in buying a starter house which would have cost him only 1/3 of what he is paying now on rent. He should have bought 2 two-year old cars with 1/3 of loan payments and insurance. He should have also bought some health insurance policy when he knew he was going to have a baby. They could have saved $40,000, which would have been a good cushion for 3 years if the wife could not work at all. You do not need 2 cars if you are staying home. Most of the people want 2 cars. Why do you need another car?
Your wife needs a car to do groceries? Why can't she wait until you got home? Most of the Europeans as well as the Asians don't have cars for each and every member of their families! Here, even if people don't need and cannot afford a car, they have to have a car, by borrowing more money and putting themselves in debt.
An average car depreciation, insurance, and fuel costs $600 a month if it is standing in front of your garage. If that money is saved, this is what your savings are going to be.
Johnny-------- who lived in Sanford, FL, had interests in raising horses and bought a 90-year old farm house which was on 5 acres of land in the year 1988 . He bought the house for $180,000 and gave the owner $8,000 and his gold Rolex watch which was worth $5,000 and the owner who knew Johnson's father sold the land and gave Johnson 5 years to pay. The only thing that Johnson had to pay was 6% interest per year. As one developer accumulated land on both sided of Johnson's property, he needed Johnson's land and he paid him $400,000 after 3 years.
Johnny made a profit of $220,000 and bought a big home for $7,00,000 in Heathrow fl. thinking that he could flip it immediately with a big profit.
The market went down and then stayed flat for 5 years so Johnson could not sell his house fast enough and did not have the money to pay mortgage payments at end . Unfortunately he lost his job after a year and could not get find another job for a period of 6 months. He did not have enough savings to support himself and the interest payments on the house.
After six months when he had bought the house he could have sold it for $650000. But he refused to sell it and take a loss thinking that he will be able to make money if he had kept it. If he had sold it that time he could have still saved his $140000 of his money which he had put as a down payment after deducting his carrying cost. Instead of doing that after 6 months he borrowed $50000 on his home equity line further sinking himself in debt.
After a year he had an offer of $585000. He still did not sell it. He could have still walked out with $40000 and saved his credit. After two years he could not sell his home even for the amount of mortgage he owned on the house. After two years bank had started foreclosure proceedings. He got an offer of $50000 below what he owed to the bank, he should have negotiated with the bank on a short sale and may be saved his credit, He kept on living in the house till the time court forced him to leave the house, Now he had a job but now he could not buy the house as he did not have any credit left.
Johnny should have bought another farm which was available 3 miles further down and had a small home for $300,000. If he had done that he did not have any mortgage to pay. He could have worked only two days a week and could have fun for the rest of his life. Sometimes people make one good move in their whole life time and have a very comfortable life all their life. Jim had bought that land and sold it to a developer for $900,000 in the year 2005. This developer took an option to buy this land for nine months with a small deposit from Jim bought and further subdivided land into a small residential subdivision of 35 houses and made $300000 in just dividing the land and sold the whole subdivision on paper to a developer.
James-------- who used to work in my IT department, a fresh graduate of UCF in the IT field, extremely intelligent, but did not know how to manage his finances. He spent thousands of dollars just to take a trip to Bahamas with his girlfriend. He had a few credit cards, so they spent one week in a 5-star hotel, paid $300 or so on dinners and they gambled in casinos thinking they can get their money back.I have seen my friend Robert making more than 4 times of what he used to make 5 years ago. They have a 10 times bigger house, from an old Cadillac Seville to a brand new 7 Series BMW, from cooking at home to fancier restaurants, cruise vacations, expensive jewelry, etc. Although we know their income has gone up by 4 times, their lifestyle has gone up by 10 times. Truth of the fact is that as income has gone higher, banks have given them higher credit lines. They have borrowed money to buy most of their things. They were more or less debt free five years ago. They had a very small house which they had bought 15 years ago, which they sold for $250,000 and put $150,000 of that money to buy a million dollar home and spent the balance to furnish it. They leased their new three BMW cars, and so on.
Before, we had seen this family going to church together every Sunday. Now the husband is traveling at least 15 days in a month. Before, the wife was at home. Now the wife is working also and the kids go to the babysitter and she picks them up when she comes back from work. The family, instead of saving money, decided to spend more than what they were making. Is this the new American Dream we have?
As we were friends, one day, my friend Robert started telling me that his house has gone up by $200,000 more than what he paid, he justified his buying a bigger home on mortgage than what he can afford.
Then in the year 2007, the real estate bubble burst. Prices of the houses went down instead of going up. Mr. Robert could not sell the house for even $500,000. He did not want to sell at that price, because he was losing money, but on the other hand, he was loaded with debt and every day, his load of debt was becoming bigger. After holding it for 2 years, he lost everything. Imagine if he had saved the money that he was making and had invested it in something that was income-producing, he could have had total financial independence.
Most Americans don't have any savings. They are living hand to mouth. A lot of people who had some savings as equity in the value of their homes also went ahead and borrowed money against the home equity lines and renovated their homes. They are now finding out a bigger debt load and it is hard to pay interest on their new debts. These kinds of debts that we raise make us slaves and we have to work all our lives to pay these debts.
Alexander and Nancy:----------bought his first home when he was 26 years old. He and his wife Nancy were both working. Alexander was finance major. He was dating Nancy for the last 3 years and finally last year they got married. They both came from simple middle class families and both their parents were living 15 miles from them and had their own homes. They were by no means rich but a moderate family. Alexander and Nancy both had saved close to $16,000. Nancy did not want to have children until the time they had their own house, so they decided to buy their first home for $75,000 in 1981. It was a 2-year old house in a good neighborhood. It took them 5 months to buy that home. Every weekend after church they would go and search for homes. Many times they were just very close to making an offer but they backed out as they were scared that they were overpaying for the home. Houses in that neighborhood had not gone up in value for the last 3 years. They had no intention of selling that house immediately but still they wanted a good deal as well as the home which they liked them also did not want a very old home because the both did not know how to change the light bulb even. Alexander was happy that he did not wait further in buying that home. Although the housing market was still weak, there was less and less supply of homes in that area. After a year and a half of buying that house, they had a little girl and they named her Julie. Nancy went back to work at her office after 3 months, and Alexander's or her parents would babysit Julie. Then the government decided to build an airport. This had been in plan for the last 8 years. The government had already bought the land, and all the engineering plans on the airport had been done. People who will be working on this multi-million dollar construction of the airport needed a place to live so the demand of homes really went up. All the land around the airport also doubled in value, so prices of existing homes in that area also skyrocketed. It took them 3 years to finish the airport. While the airport was being built, two big hotels as well as five small motels were also being built. Every small fast-food chain restaurant and small malls also sprouted up like mushrooms within a period of 3 years. The airport authority had started hiring people who will be working at the airport which was going to be opened in 3 months. Julie was now 3 ½ years old. Alexander's neighbor Robert decided to sell his house for a crazy price of $240,000. To his surprise he got an offer of $220,000. He counter-offered it back for $225,000 and told them he won't be able to move out in 90 days. He wanted to give himself 90 days to find another house. During the time he will stay he agreed to give the buyer $1,500 a month rental and he could leave anytime within a month's notice. In 30 days, the house was sold. Robert owed only $57,000 on his old home. So after paying his real estate agent, with whom he had negotiated 3% commission Alexender had $158,000 in his pocket., plus he had saved close to $60,000 in the last three years plus he put some money in his 401K plan. Now Robert could afford to pay close to $215,000 for his new house. Alexander and Nancy always knew their home was the best and safest investment they could do. Nancy was an accountant by profession, who always wanted to save taxes. She always used to tell people that we are all working to build some equity. But as soon as you make $1,000, Uncle Sam takes away $350 so you are left with only $650. Now, if you invest in your own house and do not sell it within 2 years, if you are married, you can have up to $500,000 tax free. So by selling their last home they made $158,000 of profits on which they did not have to pay any taxes because it was profit made on the sale of their personal home. If it was a regular income to save $158,000 they had to pay close to 30% in income taxes. It is amazing that their original down payment of $16,000 brought them $221,200 of profits in 5 years. Even after Alexander and Nancy bought their home, they were always interested in looking at the new developments and open homes around their area and inquiring about their prices and so on. They always knew because of the leverage and tax benefits, there was no better investment than buying a home... Now, it was the perfect time for them to move. They wanted to move to a better area where they had a better elementary school for their daughter. They did find another home in a big development which was very close to where Nancy worked but was 26 miles away from Alexander's place of work. I was only 10 miles away from their parents. Now they did want to use all their savings of $158,000 in their house, plus $60,000 of savings gave them $218,000 which they could put towards a down payment. They both decided to buy a real big house as they did not have time for cleaning and with one kid; it was okay to stay within 3,500 square feet of livable space. They were able to find an excellent deal on a house which was 2800 square feet and was in a very good school area. The elementary school was within a walking distance. The home went for $740,000 but it was in a very nice neighborhood... It needed new kitchen cabinets and flooring. Similar houses in this area were selling for $10,00,000. This house needed $50000. of TLC to look like a $10.00,000 home. As the owners of the house had moved out 3 months ago, it made the home look run down from outside curb appeal. Alexander decided to do repairs to the home. He bought it for $740,000 at 5% interest per year and paid 20% down payment. He hired most of sub contractors himself to keep his fixing costs low. He had 2 months to move to this new house. He was able to finish all his renovations in 45 days and moved his family to the new house... Alexander and Nancy both knew that Houses, on an average, go up by 10% in value if you are in the right area... Alexander and Nancy sold that house after 2 years for $1.2 million. Alexander had become the general manager of his export company. Nancy had become a partner in her CPA firm. Their income had doubled in the last 5 years. They were both making close to $320,000 a year. They bought a new condo in Manhattan for $1.8 million, which was sold for close to $2.5 million when real estate prices were inflated. At least twice a month they will go around and check values of the real estate. They had one principle that they will never buy any property if they could not buy it at 70cents to 80cents on the dollar, so more or less, they will make 20% profit at the time of buying. This needed a little bit of understanding of real estate and finding the best deal. However, they knew the secret of real estate, which is on an average, real estate goes up by 7% over a period of time, and if the prices of real estate have come down this is the best time to buy as these prices will go up in value again within five years.. On this gain they are not paying any income taxes as this was their own home and they never sold it before 2 years. They always looked at areas which had an upside potential. Within 10 years since they had bought their first property they had built equity of $1.5 million dollars in their real estate property plus they had used their property to live,.
Alexander and Nancy----- were now tired although they were making good money and had a good strategy on the real estate. Their taxes, insurance and mortgage interest and condo fees were still pretty high, plus they had a new baby and wanted to spend more time with him. So they decided to sell their condo for $2.7 million, they took their equity and moved back to the suburbs again in a $7500,000 home bought it all cash and invested the rest of the money in buying a shopping strip for $1.5 million with a good income which had a good cash flow of $150,000 a year. Now they had 3 kids. Nancy, at the age of 42, now was working part time from her home and giving her kids loving tender care. With the income from shopping center and their incomes. They had a beautiful family and comfortable life plus lot of money to send kids to good schools. They were smart to pull out their equity from house which had no income and they invested it in shopping center which had an excellent cash flow. Shopping center goes up in value and rental which means they will have good retirement money to live. Unfortunately lot of people don’t think that way once the y will keep on buying expensive homes and expensive cars and will sink themselves in debt. Husband and wife both will work 60 hours to pay their big expensive mortgages and will not have either kids or they will be sitting with baby sitters as parents have to work to pay for their lifestyles.
Robert--------- who was Alexander's close friend.Robert was senior to him at his office. He was living in a small condo in Manhattan with his wife when Alexander bought his first house. He was always scared to buy the loft in which he was living, which was $152,000 and worth $1.4 million after 10 years. Robert always thought that real estate in NY was too expensive and could not go higher than that. Robert is now paying $2,800 rent per month in a lousy loft and Alexander built more than $1.5 million of equity and is living in a nice place. Robert was always scared to buy real estate. He always thought it would go down. If he had invested in his own house and paid rent to himself, he could have easily at least owned his own apartment and built good equity. He was making more money than Alexander as far as his pay was concerned. The only difference was, he was a tenant and never understood how real estate always goes up in big cities and how leverage and inflation can help make money in real estate. You don’t have to pay taxes on real estate profits at his own house when you sell it at a profit. His friend Alexander also could deduct all his interest and few other expenses from his income taxes which means bigger savings.
Questions and answer between John and Ashok
Q: John: what do you think about borrowing , credit cards and leveraging:
A:Ashok Sometime people get into big debts first borrowing against their credit cards and then against their home equity line of credits. People use credit cards and home equity line of credits to live on. They pay their month to month expenses by credit cards. They end up getting lot of credit cards. They borrow from one and pay off old credit card. End result is one day comes when they reach their limits and credit cards get declined and there is no way to pay debts. As interests and penalties on credit cards are very high once you get trapped heavy into credit card debt and have exhausted your all equities including your home equity line to pay off non producing debts then only alternative left is to go bankrupt and start with a new slate.
On the other hand if your credit is good and you can borrow you have tremendous power to make money, as you can jump into opportunities and use your power of debt to acquire good stocks or real estate at a fire sale price. I know people who have borrowed from credit cards as well as against their home equity lines of credits to put a down payment against investment properties which they had an opportunity to buy at much lower market value now have excellent income producing properties as well as have built lot of equity. They borrowed money as a bridge financing for few months just to acquire the asset and then refinanced it at a much lower interest rates within months. While lot of homeowners are being foreclosed on their homes because they borrowed money on non income producing big personal homes which really their income levels could not afford. On the other hand people who invested in income producing houses or apartments assets make money when people are renting then buying.
Q:John: What do you think about getting a good job and staying with it and saving money in the money savings accounts because of these uncertain economy. Or you recommend investing in stock. AIG
A: Ashok Another type of bad financial advice tells us to get a safe job, save money, buy a big house, get out of debt, and invest for the long term in a well-diversified portfolio of mutual funds OR REAL ESTATE. But according to the Census Bureau, in 1999 the average U.S. income was $49,244. And in 2006, the average income declined to $48,201. This means that U.S. workers haven't had a pay raise for seven years, Plus if you had kept your money in the last ten years in a bank in a term deposits for short periods you would have less money as inflation will eat up value of your money ,so leaving money in bank’s is not a good idea.
Chapter------7 Selling and leasing Real Estate.
Leasing: Finding a good tenant. Now once you have found a good deal next hardest step is finding good tenants if you found the property for investment purposes.Good tenant will pay your monthly mortgage interest and other expenses. Bad tenant will refuse to pay rent in time as well as damage your property. Good tenant is very important for being sucessfull in the real estate business .You need to take these steps to be on the safe side. Sometimes even the best tenants can really put into big time losses.
Screen tenants. Give tenants an application to fill up .You can buy these at local office supply store. You check your tenants credit report as well as background check up. Also check with his ex landlord if he paid the rents. A few hours of homework done before leasing can save you thousands of dollers and time and frustrations. Check his job stability as well as for how long he has been able to retain jobs. If there are other family members then check their background and income also and make them co sign the lease.
Chapter------8 Real Estate Exchange
Some times real Estate can be exchanged between two parties. It can be done via 1031
Exchange under section 1031 of IRS act.In exchange under this act no gain or loss is recognized by IRS. There are time limits when these properties are exchanged check with your tax attorney or CPA before doing these exchanges.
CHAPTER-------- 9)How to become an Entrepreneur. Becoming rich in Retail and Service in business
Don't waste your time Take an action.
To be rich and successful try to learn everyday something new. More things you know better off you will be.In this age we are so blessed that you can go on the internet and learn. You can also go to bookstores for examples at Barnes and Noble or library and read free different books and newspapers and increase your skills and knowledge. From the things you know see where your strengths are. After realizing where your strength is develop that idea and now start working on it. Stay focused on it and make it a success and that will make you rich. If you look around you there are lot of friends and people who were poorer then you and less smart then you but have become rich, how they have become rich because they were determined to become rich and followed some of these principals and techniques of becoming rich. Main important thing is they took an action whatever they learned from this book or other books.
I made millions in retail and invested in Real Estate. Retail and service business is the fastest and safest way to make quick money without having to much money in your pocket.I started with no money at age of 25 and was financially independent by the age of 29 in import and retail business .I have done retailing and distribution of materials for 40 years. I started with no money and no exp either.My family was not in business either that I learnt from them either I learnt at my own and jumped into any ideas I had. Most of the times I made money with my products sometimes I lost money also but overall I became rich by doing it again and again and turning my money over and over and making small profits each time. I made lot of money in real estate but I lost when ever recession hit because I was over stretched and lost cash flow did not have enough cash producing properties. Retail is like a cash cow. In tough times even you can take a small loss but cash your money. In real estate crash even if you want to give away properties it can take you months to sell them. On the other hand if your properties don't have big debt and they have a cash flow there is no better business then that. Because you have invested once and your properties are growing and rents are going up every year. In recessions they go down but back they come back in very short period.
If you are starting your own business then start it in your own building if possible particularly in recession. Instead of making your landlord richer pay rent to yourself.
A good business once established also makes money without working very hard into it. If you have good managers and employees they are managing it for you and making you money.You are giving them salaries and may be a little bit profit sharing but big chunk of money you are keeping it for yourself.Slow and study profits in retailing or small businesses can make them grow very fast and big in a very short period of item.Some people take too much risk and want to become rich faster but when they fall they loose everything. It is better to grow slowly but surely.
If you have started a business and you are only working yourself in your business then you are better of working for some one else . When you say you own a business it should mean that you have people working for you and they are making money even without you all the time. When you expand your business you should hire skilled people who have skills to do different things for you and to make you grow.
A business will not be successful if you don't hire good skilled motivated people to work in your business . This is what all the business is all about finding a good product idea and people to sell it to other people at a profit.You can be successful and make lot of money if you put all these together.You may have the best product and if you don't have people to sell it you won't make money vice verse you may have the best people but if they don't have a good product at a competitive price then what are they going to sell .A successful entrepreneur puts all these things together and that's how he makes money. There will be lot of learning and hard work but at the end it can be very rewarding. To be successful in any business it is important that either you should know yourself these different things which are mentioned below or you should have a staff who knows about these things.
9A FINANCing your business: One of the most important thing in a business is Finance.It is important that one should know his and his family financial condition . Business can take few months or years to establish and if you don't have the financial plan how to survive during that period.You must take into account how are you going to pay your day to day bills.In the beginning business may not make money but you will still have your monthly fixes expenses. If you cannot pay them and don't have money then you will have to work for some one else. You should have a proper financial plan to see what will it take to start a business in the shape of rent,employees salaries, capital equipment,stock,advertising and all other expenses which may be necessary to establish business over a period of one year.You must have a cushion to survive for at least one year. Most of the best businesses fail because of under financing. You don't want to start business when you are under financed.If you start a business and it does not becomes profitable soon and you don't have a holding capacity to stay afloat till the business becomes profitable then you will loose what ever your own money which you had invested in business plus the money you had borrowed to do business . You will still owe money to people from whom you had borrowed money. If you don't give them back money which you had borrowed your credit will go bad and that puts you into further trouble. So it is very important that you should understand financing. It is important to borrow to run the business but it is more important to learn that what you have borrowed how you are going to pay them back. If you cannot pay back interest as well as borrowed money back to your creditors then they will foreclose on your assets and you will loose everything. It is important that before you start any business you first save as well as learn have some experience by working for someone else in the type of business you are going to start for yourself. Most of businesses become successful if the people who start them know some basics of financing. When you are running the business it is important to have knowledge of accounting . It is so easy to learn bookkeeping as it can be done by buying a very inexpensive QUICK BOOK accounting programme. Q.books can track your inventory,customer,vendor records as well as all other financial information you need to know.Initially you can hire a person who can show you how to set up your books and then you can do it yourself.But is important to know your figures and finances all the time.
HUD helps people in buying homes as well as helps people setting small businesses by providing financing as well as giving grants.
9BHiring and managing people: Once you have decided to start your business one of the important and toughest job is to hire good skilled people who can produce more then what take away from your company. If you are lucky to find good people then you must learn how to manage those people whom you have hired. Some time on job training is important and meeting and working with them together to show them your vision and which way you want them to move your company. Employees should have a leadership and a creative quality that way they can move company forward and not waiting on their boss all the time. An employee to whom you have to baby sit and cannot produce at his own is a liability to the company.
9cMarketing plan for your business:
After you have started the business it is very important to place your marketing plan together. You may have the best product if you cannot market and sell it then you will fail. Advertising can be done by Internet,newspapers,direct mail, trade mezzanines, radio,TV,telemarketing,chambers of commerce and so on. Lot of time different means will be needed to advertise and finally a what ever works best for you that method should be used. Too much or too little advertising can kill the business . If you spend too much and cannot make it back then you will loose money but if you don't spend money on advertising then people may not know your business so it won't make money either. I have seen lot of people have built very successful businesses with proper advertising.
Strong Buying Skills :If you are starting a retail or distribution business it is important to have a very strong buying skills. It is said that profits are made on buying and not on selling. You have to find most salable products at best prices. For example Wall Mart and Rooms to Go and lot of other retail stores and distributors are buying most of their products from China and Far East as it is cheaper to buy them.Lot of big companies are outsourcing from India lot of services as labour rates in India are much cheaper.
9DPlanning and vision of business: Any good business will need planning and vision of its owners and managers.Good entrepreneurs learn from their mistakes and make money in the products where they were successful. They create opportunities as well as when the opportunities come in their way they profit out of them. Good entrepreneurs see where their strengths are they take advantage of it.Find out your strengths and focus on your strengths and your business will grow very fast.Be creative and give new ideas to your strength and you will mint money.Once you have started something then make it sure it makes money. Lot of time people loose their interest when they are very close to success or they start something and never finish it leave it just before it was going to be a successful business. Focus your attention and strength in which you want to be successful. Thousands of thoughts and ideas come during the day but if you just focus on some of your thoughts or customers and close those deals you will become rich. If you want to make money in Stock market just focus on the general stock market condition and on may be 10 best strong companies and see when they go up or go down and buy and sell them and you will make money instead looking into hundred of stocks.Once you focus on 10 stocks you will master how they move,there is no way you can master hundred of stocks.Focus on some thoughts and say no to other thoughts.
Find a product or service which can be sold. For example when Hurricane hit Louisiana people made lot of money and they moved to Louisiana to fix roofs and houses . There may be some areas where they are still not recycling. People have made millions in recycling and there are similar ideas.If there are not enough plumbers,carpenters or electricians,catering or transportation services and so on there are hundreds of products and services on which some time lot of money can be made.There are people who leased a small truck and started a trucking company and now they own a multi billion dollar shipping empire. Look at people who started EBay, Yahoo and hundred of Internet companies. What these people had in common was a small idea at what they were good at and they focused and developed it .Wall Mart started in a small store front and became an empire of retailing.Read books on these entrepreneurs and put your ideas together and get focused and determine to become rich.
9F.Customer care and giving value to customer.
When you have an idea or product and you think it will make money then start marketing it. Find out if there is a demand for that product or idea and people will buy that. Give people a value and service which your competiton is not giving you will make money.Go an etc mile which your customer is not doing.
When people spend money they always want to know what they are getting in return. More you will give back compared to other people more they will come back to you. As they will come back to you again and again you will sell more and volume will make you richer.
Offer incredible value to your customers, Like Wal Mart did it to its customers. Wal mart gave its customers value and customers rewarded him back by coming back all the time and telling their friends about Wal Mart.
CHAPTER 10----------------- INVESTING IN STOCK MARKET
Most of the mutual funds did not give any returns or have appreciated in the last 10 years. Plus if you had kept your money in the S&P stood at 1,352.99 in March 2008, which is below its mark of 1,362.80 in April of 1999. .
Some people think that by diversification as Warren Buffett does they can make money. Yes diversification is good if you are buying and investing in companies which are undervalued as Warren Buffet does. But people who invest and diversify and don't know what they're doing will loose. "Diversifying is like going to a horse race and betting on every horse without knowing which horse and jockey who is directing the horse is good.
To become rich and good business person , read books and articles on real estate, stocks ,financial newspapers they will help you in improving your investment skills.
A solid financial education allows you to know the difference between good investment and bad investment. Don’t speculate and start buying stocks on speculation that they will go up in value in the near. If the companies are not blue chip stocks and are loaded with debts and don’t have a track record of income then just don’t invest your hard earned savings.
If you want to become rich -- and remain that way -- it's important to stay invested and buy only good investments .let your money your borrowing power work for you and your investments are growing all during the day and night even while you are at a Gym and having fun.INVESTING IN STOCKS FOR LONG TERM Each bull and bear market has a period of at least five to eight consecutive months of continuous gain or decline. Bear markets, last on an average of 12 months. On an average in a bear market you can loose up to 40% , but if you have good companies and keep those stocks you will recover within two years and will again make money in the long term. Basically short term losses of bear market are paper losses, if you have a holding capacity and don’t get panicky and sell stocks when markets are bearish.
Bull markets on an average last for 48 months, in each bull market your assets can more than double in five years if not lot more. As bull markets stay much longer then bearish markets so if you stay invested most of the time and stop timing the market you will win in the long run.
Markets will always recover over a long term if you keep investing over a period of long term. People who wait for the best time to buy and sell will miss some big gains. People who invest for short term never become rich. First of all if you are timing the market all the time then you are not invested most of the time which means your money is not working for you, Secondly when you take your little gains too fast then you miss out really big gains. This applies in the stock market as well as in the real estate. When you leave money invested then your profits of investments generally also get re invested and they also start making money, so your investment keeps on gaining value. You also don’t have to pay taxes on those profits. So all the money you have saved on taxes as well as all your gains keep on producing and your wealth will grow. INVESTING FOR LONG TERM Each bull and bear market has a period of at least five consecutive months of continuous gain or decline. Bear markets, last on an average of 12 months. On an average in a bear market you can loose up to 30% , but if you keep those stocks you will recover within two years and will again make money in the long term. Basically those are paper losses if you have a holding capacity and don’t get panicky and sell when the markets are bearish start going down.
Bull markets on an average last for 48 months, in each bull market your assets can more than double in five years if not lot more. As bull markets stay much longer so if you are invested and stop timing the market you will win in the long run.
The study found that a $10,000 investment in the S&P 500 in 1988 would have grown to $72,932 by June 30, 2008, despite the 43 percent downturn of 2000-2002.
Let us say if you invest close to $10000 a month even in S & P which is close to $800 a month it will be become close to $900000 at the end of ten years. Markets will always recover over a long term if you keep investing over a period of long term. People who wait for the best time to buy and sell will miss some big gains. People who invest for short term never become rich. First of all if you are timing the market all the time then you are not invested most of the time which means your money is not working for you, Secondly when you take your little gains too fast then you miss out really big gains. This applies in the stock market as well as in the real estate. When you leave money invested then your profits of investments generally also get re invested and they also start making money, so your investment keeps on gaining value. You also don’t have to pay taxes on those profits. So all the money you have saved on taxes as well as all your gains keep on producing and your wealth will grow. That is how Mr. Warren Buffet became richest man in the world. Mr Buffet invested in the best companies which were managed well and left that money to grow.
11.)INTERESTING FACTS and conclusion
1. Only 10% of people have saved enough money to retire at the age of 60.
2.We all need a roof over our heads to live.
3. People who don’t own their houses and rent from other people always stay poor because they are making their landlords rich. Renters look like half of their parents did not own their own houses.
4. Most people live from paycheck to paycheck.
5. There are 18% of people who have no savings and nothing in the bank.
6. An average American owes $10,000 in credit cards debts. How did they get into that? People will spend more than what they make if they are given credit cards, which, to them, is quick cash now in their pockets and something they can’t pay back.
7. People who speculated in the stock market usually lose if they were not in the upward market and did not have the proper strategy to get out when the market starts going down. They did not invest in volume stocks or in companies which they thought were good and got wiped out.
8. Remember, no matter what investment you do, it will always have a chance of losing. But if you are smart and invest with care, you will always make money.
9. The government (TAXES) is our biggest expense. It takes away 35% to 60% of our income in shape of federal, state and local taxes.
10. You can avoid legally paying the government by investing in greater retirement accounts and writing off your mortgage interest expense on your personal taxes.
11. You can make 400% or more return in 10 years on your original investment, so if you originally invested $50,000 in down payment to buy a $250,000 house, after 10 years, if you sold the house for $450,000 which is $200,000.of profit, on $50000 of your original investment. Which is close to 400% return on your money or an average of 40% a year?
12. Buy real estate when interest rates are lower and the real estate market in depression. Like in 2008 and 2009 real estate bubble got burst and brought down and real estate prices crashed and lot of people who had speculated their house were foreclosed and smart people bought them at 50 cents to a dollar.
13. Real estate keeps on going up, but in some years they also have a tendency to go down. When the market gets flooded by speculators and the prices shoot through the roof in value, then the real estate bubble bursts and prices go down.
CONCLUSION:Don't let the recession bother you .
This is the best time to buy your house. You are still paying rent, instead of paying rent pay a mortgage and in few years when prices will rebound you will be rich.
America, as a nation, is the richest country in the world, but are Americans really rich? The answer to this question is YES and NO. Yes, we are still the richest country in the world. No, because people, instead of having savings, are living in debt or very little money. More than half of Americans have hardly any or no money in the bank. Hopefully our Social Security will be left with enough money to put food on the table and a roof over our heads.
Please look into your pockets and bank accounts if your pockets are full of credit cards and bills. If your bank account does not have money to support you for a period of 6 months in case you are without a job, then you are not rich by any means. Please read this book again and again, and because America is rich, you can become rich also.
God’s blessings: America is rich. We are blessed that we are either born or have immigrated to a rich country. When a country is rich, people who are living the can become rich very fast. Poor countries have no resources and finances, have corrupt governments, and no systems where people can buy houses or save money. But we are blessed, our financial institutions, our government, and richness around are available to everybody, you just have to listen and learn. Read this book again and again, and you will learn a few small techniques, and other people’s experiences can help you become rich and financially independent. As America is rich, you have to become rich also.
st of these people can pay off their homes in 5 to 10 years if they really saved money. Imagine the financial independence and security you will have if you don’t have to pay rent.
Don’t take a long term mortgage on your house; instead, take only 15-year balloon mortgages. Their interest rates are at least 1% lower than 30-year mortgages, and if you put a 20% down payment, they you don’t have to buy a mortgage insurance, which means a further lower interest of at least 1.5%, If you have good credit, you can save up to a 2% interest on your loan which means you will have to pay 25% to 30% less on your interest payments.
Don’t borrow more than 70% on your house. Try to pay off your mortgage as soon as possible.
When you will have some money saved and financial independence, you will see that you feel richer and you will not be stressed out or worry everyday about money.
Now remember, again, you should save up to 10% to 25% of your paycheck every week, which can be only $30 to $100 a week. Put it in the locked box or open a savings account with an interest and after a few months a term deposit. Have a strong willpower of saving and not spending. Don’t lose your willpower of not doing it. Think of having your own house in two years and financial independence within ten years. YOU CAN DO IT!Every one can make money in the boom times.But some people who are smart and save money and when the recession hits they can buy property or stocks and buy them dirt cheap. Most of rich people who knew how to invest will always stay rich. Poor and middle class who do not know how to invest sometimes become poorer if they invest their retirement savings in stock market real estate crash.
So much money and energy is wasted on things we could get for free. If you're into new, shiny things and collecting stuff, this is not for you. But if you want less clutter in your life and want to keep more of your money, then check out these 15 things you shouldn't be paying for.
Basic Computer Software -- Thinking of purchasing a new computer? Think twice before you fork over the funds for a bunch of extra software. There are some great alternatives to the name brand software programs. The most notable is OpenOffice, the open-source alternative to those other guys. It's completely free and files can be exported in compatible formats.
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Your Credit Report -- You don't have to pay for your credit report. You could sign up for one of the free credit monitoring services online to get a quick look at your credit report. You just have to remember to cancel the service before the end of the free trial.
Cell Phone -- The service plan may be expensive, but the phone itself doesn't have to cost a thing. Most major carriers will give you a free phone, even a free smart phone, with a multi-year contract.
Books -- There's a cool place in your town that's renting out books for free: the library. Remember that place? Stop by and put your favorite book on reserve. And if you don't feel like getting out, visit www.paperbackswap.com and find your books there (small shipping fees apply).
Water -- Besides the monthly utility bill, there's no reason to shell out $1 for every bottle of water you drink. Bottled water is so last decade anyway. We're over it, and into tap, filters, and reusable water bottles. It's cheaper for you and better for the environment.
Credit Card -- With as many credit cards as there are available on the market today, it's easy to avoid a credit card with an annual fee. Unless you're dead set on a particular perk that a fee card brings, skip the annual fee card and pocket that money yourself.
Debt Reduction Help -- Speaking of credit cards, if you're in over your head with credit card help, there are many free sources you can turn to for help with your debt. No one is going to be able to magically wipe away your debts, but there is help out there that will set you up on a debt reduction plan you can handle.
Basic Tax Preparation -- If your tax situation isn't that complicated, then you should probably be preparing your own tax return using one of the many free online services. It's now common for e-filing to be free as well with many services. You won't even need a stamp.
The News -- Leave it to a blogger to try and kill off traditional print. I'm not anti-newspaper. I just don't find them practical anymore. Skip the daily .50 cents and get your news online. And for you dedicated coupon clippers, you can get most of your Sunday coupons online now too.
Budgeting Tools -- There are many budgeting tools (both online and desktop) that offer up the service for free. Don't ask me how they do this, but who cares. If you're looking to reign in some of your spending, the good news is you can do it for free.
Pets -- This is a controversial one, I know. But there are likely many pets down at your local animal shelter that could use just as much love as the pure-bred types. There may be a small fee due to the shelter for shots and basic care, but you'll have your pet home without paying a mini-fortune.
Shipping -- If you like to buy online, you probably use coupons to get a percentage off of your purchase. Take your skills to the next level and look for coupons or promotion codes that offer free shipping. If in doubt, visit a site like www.freeshipping.org.
Checking Account -- Isn't it nice when a bank takes your money, lends it out to earn money, and then has the audacity to charge you for the service? What a joke. Checking should be free. If yours isn't free then move to one of the banks that offers a checking account for free. And the same can be said for ATM fees, teller fees, and checks.
DVD Rentals -- Most libraries now have free DVD rental.
Exercise -- Skip the expensive gym memberships. Visit your local park for a walk or run. Do basic push-up and sit-up programs in your living room. Rent a workout DVD from the library. There are many free workout programs you can download online as well.